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July Construction Declines 10 Percent
August 21, 2012 - New York, NY
New construction starts fell 10% in July to a seasonally adjusted annual rate of $401.2 billion, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies. After showing improvement during the spring, the pace of construction starts retreated over the past three months, with July coming in at the lower end of the recent range of activity. Nonbuilding construction, comprised of public works and electric utilities, fell sharply in July, while both nonresidential building and housing lost some of their earlier momentum. For the first seven months of 2012, the volume of total construction starts on an unadjusted basis was reported at $262.9 billion, holding on to a 4% gain compared to the same period a year ago.
The July statistics lowered the Dodge Index to 85 (2000=100), compared to a 94 for June. The current year began on a weak note, with the Dodge Index slipping to 84 in February, to be followed by elevated index readings in March (103) and April (114), which reflected in part the boost coming from the start of two massive nuclear power projects located in Georgia and South Carolina. Activity then settled back in May and June, with index readings of 95 and 94 respectively, which remained slightly above the 92 average for the Dodge Index for all of 2011. July brings the pace of total construction starts back to the lackluster activity reported at the outset of 2012.
"The construction industry is still struggling to gain upward traction, as construction starts continue to exhibit an up-and-down pattern," stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. "The public works and institutional building sectors are still being adversely affected by the tough fiscal climate facing the federal, state, and local levels of government. Commercial building, which seemed to be in the very early stages of recovery, is seeing its faint upturn become more tenuous with the sluggish employment picture. The upward potential for housing in the near term is also being dampened by the persistently hesitant U.S. economy. Overall, the construction industry remains stuck for now in an extended process of turning the corner."
Nonbuilding construction in July dropped 18% to $109.1 billion (annual rate). The electric utility category plunged 36%, falling for the third month in a row after the exceptional activity that was reported during March and April. July did include the start of a few noteworthy projects, such as a $535 million gas-fired power plant and a $75 million biomass plant, both in Texas, but the July pace of new electric utility starts was down 84% from this category's average for the first six months of 2012. The public works sector in July fell 16%, sliding back after a brief upturn in June. The "other public works category," comprised of such diverse project types as site work, mass transit, pipelines, and outdoor sports stadiums, plummeted 61% from June which had been lifted by $1.0 billion estimated for work on a new football stadium for the San Francisco 49ers in Santa Clara CA. The largest "other public works" project reported as a July start was a $75 million stadium expansion for Kansas State University in Manhattan KS. Bridge construction in July was down 19%, even with the start of a $261 million bridge replacement project in Oregon, and sewer construction dropped 11%. On the plus side, highway construction in July improved 6% from a lackluster June, although July's amount was still 8% below this category's average pace during 2011. Water supply construction in July grew 20%, aided by a $100 million expansion to a water reclamation facility in Arizona, while water resource construction jumped 57%, reflecting the start of a $97 million dam rehabilitation project in Tennessee.
Nonresidential building, at $138.1 billion (annual rate), decreased 7% in July, with weaker activity reported for the majority of the institutional categories. Educational facilities in July dropped 12%, after showing some improvement during the previous two months. July included a few noteworthy education-related projects, led by a $93 million high school in Mountain House CA, which is being financed via a leaseback arrangement, as well as a $65 million science building at Ohio State University in Columbus OH. However, these projects were not enough to avert a decline for the educational building category in July. Healthcare construction in July dropped 10%, even with the start of a $156 million replacement hospital at Fort Irwin CA and a $113 million hospital expansion in Silver Spring MD. Also showing declines in July were amusement-related construction, down 13%; and churches, down 10%. The public buildings category, comprised of courthouses and detention facilities, edged up 1% in July. Transportation terminal work rebounded 50% from a weak June, helped by the start of a $96 million terminal expansion at Dulles International Airport in Virginia.
The commercial categories in July were able to show modest growth. Hotel construction in July climbed 13%, lifted by the start of a $50 million hotel and casino in Wilkes Barre PA and a $29 million hotel addition/renovation in Denver CO. Store construction in July advanced 6%, led by the start of a $70 million retail project in Las Vegas NV and a $49 million retail project in El Paso TX. Office construction in July grew 4%, following a steep 30% drop in June, helped by the start of such projects as a $101 million office complex in Eden Prairie MN and a $50 million office renovation in Las Vegas NV. Warehouse construction in July maintained the same volume of activity that was reported in June. The manufacturing plant category in July dropped 31%, retreating for the second month in a row after the heightened activity back in May.
Residential building in July slipped 6% to $154.0 billion (annual rate). The decline was due to a 25% pullback for multifamily housing, following strengthening activity in May (up 32%) and June (up 7%). Cushioning the multifamily decline in July were the start of such projects as a $95 million apartment building in Boston MA, a $94 million apartment building in Jersey City NJ, a $78 million apartment building in Los Angeles CA, and a $61 million senior living facility in Pleasanton CA. The July pace for multifamily housing, while down 6% from the first six months of 2012, was still 10% above the average pace for this project type during 2011. Single family housing in July edged up 1%, not as strong as some of the gains shown earlier in 2012, but essentially maintaining the improved amount reported in May and June. The July pace for single family housing was up 6% from the first six months of 2012, and up 27% from the average pace for this project type during 2011.
The 4% increase for total construction starts on an unadjusted basis during the first seven months of 2012 was due to greater activity for two of the three main construction sectors. Residential building climbed 25% year-to-date, with similar gains for single family housing, up 24%; and multifamily housing, up 26%. Nonbuilding construction grew 7% year-to-date, reflecting a 19% jump for electric utilities and a 1% pickup for public works. Nonresidential building continued to be the one major sector to report a year-to-date decline, falling 15%, as the result of this pattern by segment – commercial building, down 1%; institutional building, down 18%; and manufacturing building, down 35%. The year-to-date decline for nonresidential building has been getting smaller as 2012 has proceeded, although it still reflects the comparison to the same period a year ago which included such projects as a $1.5 billion semiconductor plant in Arizona, the $1.2 billion redevelopment of the Delta Terminal at New York's JFK International Airport, and the $1.1 billion National Security Agency data center in Utah.
By geography, total construction starts during the first seven months of 2012 featured a large gain for the South Atlantic, up 42%, with much of the lift coming from the start of the two massive nuclear power projects in Georgia and South Carolina. Total construction in the Midwest during the January-July period was up 5%, while reduced activity was reported in the South Central, down 7%; the West, down 8%; and the Northeast, down 11%.
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:
McGraw-Hill announced on September 12, 2011, its intention to separate into two public companies: McGraw-Hill Financial, a leading provider of content and analytics to global financial markets, and McGraw-Hill Education, a leading education company focused on digital learning and education services worldwide. McGraw-Hill Financial's leading brands include Standard & Poor's Ratings Services, S&P Capital IQ, S&P Indices, Platts energy information services, and J.D. Power and Associates. With sales of $6.2 billion in 2011, the Corporation has approximately 23,000 employees across more than 280 offices in 40 countries. Additional information is available at http://www.mcgrawhill.