February Construction Slides 7 Percent
NEW YORK – March 22, 2013 – At a seasonally adjusted annual rate of $435.4 billion, new construction starts in February dropped 7% from the previous month, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies. The loss of momentum was present in two of construction's three main sectors – nonresidential building and nonbuilding construction (public works and electric utilities). Meanwhile, the housing sector in February continued to strengthen. For the first two months of 2013, total construction starts on an unadjusted basis came in at $62.4 billion, up 5% from the same period a year ago.
The February statistics lowered the Dodge Index to 92 (2000=100), down from 99 in January. For all of 2012, the Dodge Index averaged 99. "Over the past year, the construction industry has shown signs of renewed expansion, but diminished activity in January and February indicates that the upward trend remains hesitant," stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. "The broad pattern for construction starts is dependent upon the performance of its main sectors, and right now only housing is strengthening in a sustained manner. For nonresidential building, the commercial structure types are showing improvement, but the institutional side of the market is still being restrained by tight state and local budgets. For nonbuilding construction, the public works categories are dealing with flat-to-reduced funding support from the federal government, and new electric utility starts are in the process of pulling back from the record pace reported last year. While total construction starts are expected to see more growth in 2013, the gain will likely stay gradual as a result of this divergent behavior by construction's main sectors."
Nonresidential building in February retreated 6% to $139.7 billion (annual rate). The manufacturing plant category, which can be volatile on a month-to-month basis, plunged 79%, given the absence of large projects reported as construction starts for the month. While January had included a $550 million methanol plant and a $235 million cellulosic ethanol plant, the largest manufacturing project reported as a February start was a $22 million chemical and gas products warehouse in Florida. For the institutional categories, education-related construction in February was unchanged from the previous month, at a pace down 6% from its average monthly amount during 2012. February did include several large education-related projects, such as an $83 million research laboratory in Cambridge MA, a $75 million high school modernization in Auburn WA, and a $60 million renovation for the Boston University Law School building in Boston MA, but these were not enough to lift the educational building category. Healthcare facilities construction in February slipped 5%, remaining at a lackluster volume despite the start of a $179 million ambulatory care center at Andrews Air Force Base in Maryland and a $97 million hospital renovation in New Orleans LA. The smaller institutional categories in February showed these declines – public buildings, down 10%; churches, down 12%; and transportation terminals, down 27%. The one institutional category that registered a February increase was amusement-related work, which rose 6%.
The commercial categories in February witnessed a mixed performance. Office construction climbed 14%, boosted by several large projects. These included the $192 million Social Security Administration's National Support Center in Urbana MD, a $150 million office tower in New York NY, and an $80 million technology center in Palm Bay FL. Store construction in February rose 12%, reflecting the start of a $150 million town center shopping mall in Sarasota FL. On the negative side, hotel construction in February retreated 19%, even with the start of a $165 million casino resort project in Lake Charles LA. A steeper February decline was reported for commercial warehouse construction, which dropped 36%.
Nonbuilding construction, at $98.1 billion (annual rate), plunged 32% in February. The electric power category fell sharply, plummeting 68% from its January pace, as February included the start of only one very large project – a $500 million transmission line in Minnesota and Wisconsin. After registering consistently robust activity during the first half of 2012, electric utility construction is now seeing more of an up-and-down pattern, indicative of an emerging downward trend. The public works categories overall in February dropped 25%, following the brief improvement in January. New highway and bridge construction starts in February were down 31%, after being lifted in January by a $1.4 billion tunnel project in Norfolk VA and the $235 million upper deck replacement of the Verrazano-Narrows Bridge in New York NY. The miscellaneous public works category (which includes site work, rail projects, and pipelines) fell 43% in February, given the absence of very large projects following a January that included a $240 million railroad hub in New Mexico. River/harbor development also weakened in February, slipping 8%. At the same time, water supply construction in February edged up 1%, and sewer construction climbed 19% with the help of these projects – a $255 million waste water treatment facility in Colorado, a $182 million garbage transfer station in New York, and a $91 million waste water system in Florida. Murray noted, "Going forward, federal spending cuts under sequestration will restrain public works construction during 2013, although in a manner somewhat different from the pattern of construction starts in February. Transportation-related public works were largely exempt from the spending cuts, while the EPA water infrastructure and the Corps of Engineers accounts were subject to reduced funding."
Residential building in February advanced 11% to $197.6 billion (annual rate), bouncing back after a modest pause in January and maintaining the upward trend that gained traction during 2012. Multifamily housing had a particularly strong February, jumping 39% with the start of several very large projects – the $200 million multifamily portion of the Cira Center South project in Philadelphia PA, a $200 million apartment building in New York NY, and a $117 million residential tower at the Atlantic Yards development in Brooklyn NY. Single family housing in February rose 5%, continuing to strengthen on a wide geographic basis. By major region, single family housing in February showed gains in the South Atlantic, up 11%; the South Central and West, each up 4%; the Northeast, up 3%; and the Midwest, up 1%. Murray stated, "This year's prospects for housing are bright, even with a sluggish economy. The demand for single family housing is picking up, as shown by the improvement in home sales and home prices, while inventories are currently very low. Multifamily housing continues to see rising occupancies and rents, and condominium projects are now joining the upward path that's already well-established for apartments."
The 5% gain for total construction starts on an unadjusted basis during the first two months of 2013, compared to 2012, was the result of a varied performance by major sector. Residential building led the way, climbing 32% year-to-date, with single family housing up 35% and multifamily housing up 20%. Nonresidential building in the first two months of 2013 was down 7% from last year. While commercial building showed a year-to-date increase of 20%, weaker activity was reported for the manufacturing and institutional segments, each down 20%. Nonbuilding construction during the first two months of 2013 dropped 9% from last year, as a 9% gain for public works was outweighed by a 53% decline for electric utilities. By region, total construction starts for the January-February period of 2013 revealed this behavior compared to last year – the Northeast, up 25%; the South Atlantic, up 12%; the South Central, up 10%; the Midwest, down 2%; and the West, down 10%.
Useful perspective is also obtained by looking at twelve-month moving totals, in this case the twelve months ending February 2013 versus the twelve months ending February 2012. On this basis, total construction starts were up 8%, as the result of the following performance by sector – residential building, up 31%; nonresidential building, down 8%; and nonbuilding construction, up 5%. By region, the twelve months ending February 2013 showed this pattern for total construction compared to the prior twelve months – the South Atlantic, up 19%; the South Central, up 14%; the Northeast, up 10%; the Midwest, up 9%; and the West, down 7%.
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