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Forecasts & Trends
August Construction Advances 6%
going over blueprints

New York, N.Y. – September 21, 2010 – At a seasonally adjusted annual rate of $433.6 billion, new construction starts in August climbed 6%, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies.  The lift came from nonbuilding construction, comprised of public works and electric utilities, which showed further growth following its July gain.  However, nonresidential building slipped back in August after the improvement reported in July, and residential building continued to lose momentum.  For the first eight months of 2010, total construction on an unadjusted basis came in at $277.7 billion, down 4% from the same period a year ago.

The August data produced a reading of 92 for the Dodge Index (2000=100), up from July’s 87.  Since early 2009, the Dodge Index has hovered between 81 and 95.  “After languishing in late spring, the pace of construction starts picked up during July and August, returning activity to the upper half of its recent range,” stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction.  “That range shows total construction starts essentially stabilizing at a low level, relative to its lengthy slide from 2006 through 2008, but not yet moving up to the point where one could say that renewed expansion is taking hold.  For that to occur, more support on a sustained basis will be needed from housing and nonresidential building, which continue to be dampened by various factors, including tight bank lending and weak demand arising from sluggish job growth.”

Nonbuilding construction in August jumped 24% to $172.8 billion (annual rate), which came on top of a 26% rebound in July after depressed activity in late spring.  Electric utility construction was especially strong in August, soaring 222%.  Much of the lift came from the start of four large wind power projects, located in California ($730 million), Minnesota ($425 million and $298 million), and Colorado ($375 million).  August also included the start of a $405 million natural gas fired power plant in South Dakota.  Even with the exceptional level of contracting in August, electric utility starts during the first eight months of 2010 continued to lag behind last year, retreating 27%.

The public works sector in August was led by a 40% jump for “miscellaneous” public works, which includes such diverse project types as pipelines and site work.  A huge boost came from $3 billion related to work on the Ruby Pipeline Project, a natural gas pipeline that traverses portions of Wyoming, Utah, Nevada, and Oregon.  Additional support for miscellaneous public works in August came from $259 million related to work on the Palisades rail tunnel project in New Jersey.  The environmental public works categories in August registered gains, with dams and river/harbor development up 78%, sewers up 20%, and water supply systems up 9%.  Large environmental projects reported as August starts included two projects in California – a $227 million water supply tunnel and a $141 million dam upgrade.  Highways and bridges in August settled back from recent strength, dropping 10% and 28% respectively.  On a year-to-date basis, highways and bridges each maintained a 4% increase over last year.

Nonresidential building, at $152.0 billion (annual rate), decreased 4% in August.  Office construction fell 48% from its heightened July amount, which included the resumption of work on World Trade Center Towers 2 and 3 in New York NY.  If these two large projects are excluded from the July construction start data, office construction in August would be up 15%.  Large office projects that reached groundbreaking in August included two corporate headquarters, located in Omaha NE ($130 million) and Florham Park NJ ($100 million), plus a $90 million renovation to a federal office building in Kansas City MO.  Hotel construction in August stayed weak, falling an additional 6%.  Stores and warehouses in August showed some improvement, rising 23% and 28% respectively, although both categories remain at very low levels.  Manufacturing plant construction in August climbed 63%, helped by the start of a $213 million renovation to an engine plant in Tonawanda NY and a $150 million battery plant in Holland MI.

The institutional sector showed a large decline for healthcare facilities, which retreated 33% in August after its elevated pace in July.  While July included the start of four large hospital projects valued each in excess of $100 million, August included just one such project, a $150 million medical center in East Norriton PA.  The public buildings category, comprised of courthouses and detention facilities, continued to lose momentum in August, falling 9%.  On the positive side, educational buildings in August climbed 9%, helped by such projects as a $107 million law center at the University of Baltimore in Maryland and a $70 million technology and innovation center at the University of Massachusetts in Lowell MA.  Amusement-related work in August improved 12%, featuring the start of a $72 million center for the arts in Blacksburg VA and a $70 million concert hall at Stanford University in Palo Alto CA.  Transportation terminal work in August rebounded 49%, following an extremely low level of construction starts in July.

Residential building in August slipped 2% to $108.8 billion (annual rate).  Single family housing dropped 3%, marking its fifth straight monthly decline, as the pullback that began in the second quarter continued.  On a year-to-date basis, single family housing was still able to hold onto a lead relative to last year, up 14% in dollar terms, although the lead in recent months has been shrinking.  The year-to-date 2010 gain at the national level for single family housing was due to this performance at the regional level – the Northeast, up 20%; the South Atlantic, up 19%; the Midwest, up 16%; the West, up 14%; and the South Central, up 8%.  Multifamily housing in August receded 1%, which marked its fourth straight month of slower contracting.  The largest multifamily project that reached groundbreaking in August was a $58 million apartment complex in Elmsford NY, as the major multifamily construction starts continue to be smaller in scale than the $100 million-plus projects that were being reported two to three years ago.

The 4% shortfall for total construction on an unadjusted basis during the January-August period of 2010 reflected a mixed performance by sector.  Nonresidential building fell 14% year-to-date, due to this pattern – commercial building, down 23%; manufacturing building, down 30%; and institutional building, down 8%.  Nonbuilding construction on a year-to-date basis dropped 4%, with flat activity for public works being countered by the 27% decline for electric utilities.  Residential building year-to-date advanced 11%.  By region, total construction starts showed the following year-to-date performance – the Northeast, up 6%; the Midwest, down 1%; the South Central, down 4%; the West, down 7%; and the South Atlantic, down 10%.

August Construction Starts

 

AUGUST 2010 CONSTRUCTION STARTS

MONTHLY SUMMARY OF CONSTRUCTION STARTS
Prepared by McGraw-Hill Construction Research & Analytics

Monthly Construction Starts
Seasonally Adjusted Annual Rates, In Millions of Dollars

  August 2010 July 2010 % Change
 Nonresidential Building $151,973 $159,091 -4
 Residential Building 108,796 111,409 -2
 Nonbuilding Construction  172,784  139,038 +24
 Total Construction $433,553 $409,538 +6

 

The Dodge Index
(2000=100, Seasonally Adjusted)

August 2010...................................92
July 2010..........................................87

YEAR-TO-DATE CONSTRUCTION STARTS
Unadjusted Totals, In Millions of Dollars

  8 Mo. 2010 8 Mo. 2009 % Change
 Nonresidential Building $100,556 $116,335 -14
 Residential Building 82,456 73,968 +11
 Nonbuilding Construction  94,721  98,288  -4
 Total Construction $277,733 $288,591 -4

 

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