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Forecasts & Trends
May Construction Slides 6%
going over blueprints

New York, N.Y. – June 23, 2011 – At a seasonally adjusted annual rate of $376.1 billion, new construction starts in May dropped 6% from the previous month, it was reported by McGraw-Hill Construction, a division of The McGraw-Hill Companies.  Nonresidential building pulled back after its improved level in March and April, while residential building stayed weak.  The nonbuilding construction sector showed moderate growth in May, as a strong gain for electric utilities offset a loss of momentum for public works.  During the first five months of 2011, total construction starts on an unadjusted basis came in at $155.2 billion, down 9% from the same period a year ago.

The May statistics produced a reading of 80 for the Dodge Index (2000=100), compared to a revised 84 for April.  “The pattern of construction starts continues to hover at a low volume, providing little evidence to this point that renewed expansion is taking hold,” stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction.  “The current year has seen a few bright spots, such as gains for multifamily housing, manufacturing plants, and electric utilities.  In general, though, the parts of the construction industry that are most likely to see growth in the early stages of a cyclical upturn, such as single family housing and commercial building, have either wavered or at best shown only intermittent gains.  At the same time, the parts of the construction industry dependent on public financing, such as institutional building and public works, have weakened further.  The result is that the current period of ‘bouncing along the bottom’ for total construction is becoming more and more extended.”

Nonresidential building in May plunged 12% to $138.7 billion (annual rate), reflecting decreased activity for a majority of the nonresidential structure types. On the institutional side, transportation terminal work in May plummeted 59% after a robust April, which had been lifted by the start of a $1.2 billion airport terminal renovation and expansion at New York’s JFK International Airport.  May did see a few large transportation-related projects reach groundbreaking, such as a $176 million subway station in New York NY, but these were smaller in scope than what took place in April.  The public buildings category in May weakened 27%, despite the start of a $90 million courthouse expansion in Rockville MD, and amusement-related projects dropped 23%. A more moderate decline in May was reported for educational buildings, which slipped 7% from April.  Large projects that provided some support to May’s amount of educational building included a $175 million university research facility in New York NY and a $79 million high school in Katy TX.  Healthcare construction was one institutional structure type that was able to show greater activity in May, rising 15%.  May included the start of four large hospital or medical center projects valued each at $100 million or greater, located in Colorado ($299 million), California ($225 million), Florida ($166 million), and Texas ($100 million).

On the commercial side, hotel construction fell 64% in May, compared to April which included groundbreaking for two hotels valued at $127 million and $108 million, respectively. The largest hotel to reach groundbreaking in May was a $30 million Indian tribe casino hotel in Kinder LA.  Office construction in May fell 8%, continuing to retreat after its elevated pace in March.  The largest office project that reached groundbreaking in May was a $130 million FBI office building in Salt Lake City UT.  Store construction in May also fell by 8%, as this structure type continues to languish.  The warehouse category in May was able to jump 39%, helped by the start of two large warehouses for discount retail chains, located in Indiana ($58 million) and Alabama ($48 million).  The manufacturing building category in May advanced 35%, helped by the start of a $190 million biofuel plant in Columbus MS, a $98 million manufacturer-owned distribution facility in University Park IL, and a $75 million battery manufacturing plant in Middletown DE.

Residential building, at $116.5 billion (annual rate), dropped 7% in May.  Single family housing slipped an additional 2%, as it has generally receded during the early months of 2011.  The May slide was due to this behavior by region – the West, down 3%; the Northeast and South Atlantic, each down 2%; and the Midwest and South Central, no change from the prior month.  Murray noted, “Although mortgage rates have edged downward, helping to lift affordability, the ongoing decline in home prices in early 2011 has led to more homebuyer uncertainty, which has stalled for now any recovery for single family housing.”  Multifamily housing in May dropped 25%, retreating after April’s improved activity. The five largest multifamily projects that reached groundbreaking in May were apartment buildings, as opposed to condominiums, and were located in San Diego CA ($60 million), Weymouth MA ($35 million), Sacramento CA ($30 million), Austin TX ($30 million), and Wakefield MA ($30 million).

Nonbuilding construction in May grew 5% to $120.9 billion (annual rate), reflecting continued strength for new electric utility projects.  The electric utility category in May soared 68%, helped in particular by the start of a $2.0 billion solar generating station in Gila Bend AZ.  Other large electric utility projects in May included a $369 million natural gas-fired power plant in Anchorage AK, a $260 million repowering for two units of a natural gas-fired power plant facility in Long Beach CA, and a $100 million wind power project in Pennsylvania.  In contrast to strength for electric utilities, the public works sector in May weakened 10%.  Highway and bridge construction plunged 20% in May, continuing to slide back after the strength shown at the start of the year.  The level of highway and bridge construction is now reflecting the waning support from the federal stimulus act, as well as diminished state spending given budget constraints.  Also showing weaker activity in May was sewer construction, dropping 28% from the prior month, and “miscellaneous” public works (comprised of site work, pipelines, and mass transit) which fell 18%.  The public works decline was cushioned by a 55% gain for water supply systems, featuring a $174 million upgrade to a water treatment plant in California, as well as the start of a $100 million water treatment plant in Florida.  Also providing some support was a 48% gain for river/harbor development, helped by the start of a $123 million wharf and surrounding area redevelopment project in California.

The 9% decline for total construction starts on an unadjusted basis during the first five months of 2011 was the result of reduced activity for all three main construction sectors.  Nonresidential building in the January-May period of 2011 fell 8%, due to a 21% slide for the institutional categories.  At the same time, commercial building grew 9% year-to-date while manufacturing building climbed 156%.  Residential building in the January-May period of 2011 dropped 13%, with the comparison to the early months of 2010 when single family housing was still being lifted by the homebuyer tax credits.  Because single family housing lost momentum at mid-2010, it’s expected that the 2011 year-to-date performance for single family housing will become less negative as this year proceeds.  Nonbuilding construction in the January-May period of 2011 slipped 7%, the result of a 25% reduction for public works combined with a 105% increase for electric utilities.  By geography, total construction in the first five months of 2011 showed shortfalls in four of the five main regions – the South Atlantic, down 17%; the Midwest, down 16%; the Northeast, down 15%; and the South Central, down 5%.  The West was the one major region that was able to report a year-to-date increase for total construction, rising 3%.

MAY 2011 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

  May 2011 April 2011 % Change
 Nonresidential Building $138,657 $158,424 -12
 Residential Building 116,495 125,399 -7
 Nonbuilding Construction  120,934  114,942  +5
 Total Construction $376,086 $398,765 -6

 

The Dodge Index
(2000=100, Seasonally Adjusted)

May 2011...............................................80
April 2011..............................................84

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

  5 Mo. 2011 5 Mo. 2010 % Change
 Nonresidential Building $56,957 $62,135 -8
 Residential Building 45,960 52,721 -13
 Nonbuilding Construction  52,275  56,344  -7
 Total Construction $155,192 $171,200 -9

 

About McGraw-Hill Construction
McGraw-Hill Construction connects people, projects, and products across the construction industry. For more than a century, it has remained North America’s leading provider of project and product information, plans and specifications, and industry news, trends and forecasts. McGraw-Hill Construction serves more than one million customers in the global construction industry through Dodge, Sweets, Architectural Record, Engineering News-Record, GreenSource, and SNAP. To learn more, visit www.construction.com or follow @mhconstruction on Twitter.

About The McGraw-Hill Companies:
Founded in 1888, The McGraw-Hill Companies is a leading global financial information and education company that helps professionals and students succeed in the knowledge economy. Leading brands include Standard and Poor’s, McGraw-Hill Education, Platts energy information services, and J.D. Power and Associates. The Corporation has approximately 21,000 employees with more than 280 offices in 40 countries. Sales in 2010 were $6.2 billion. Additional information is available at www.mcgraw-hill.com.

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