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May Construction Slides 16 Percent
June 21, 2012 - New York, NY
At a seasonally adjusted annual rate of $444.9 billion, new construction starts in May retreated 16% from the previous month, it was reported by McGraw-Hill Construction, a division of The McGraw-Hill Companies. The decline followed substantial gains for total construction in March (up 23%) and April (up 11%), which reflected the lift coming from two massive nuclear power projects. Without a similar lift in May, combined with a pullback for public works, the nonbuilding construction sector fell sharply. At the same time, nonresidential building in May showed improvement for the second month in a row, strengthening after weak activity in the early months of 2012, while residential building in May continued its moderate upward path. During the first five months of 2012, total construction starts on an unadjusted basis came in at $180.3 billion, up 6% from the same period a year ago.
The May statistics produced a reading of 94 for the Dodge Index (2000=100), down from 112 in April and 102 in March, but still 3% above the full year 2011 average of 92 for the Index. The April statistics included $8.5 billion for work on Units 2 and 3 at the Virgil C. Summer nuclear power facility near Jenkinsville SC, while the March statistics included $8.5 billion for work on Units 3 and 4 at the Vogtle nuclear power facility near Waynesboro GA. In each case, the construction start entries were closely preceded by approval of a combined construction and operating license by the U.S. Nuclear Regulatory Commission, which enabled work to begin on the two nuclear reactors at each facility. If the entries for the Vogtle and Summer projects are excluded from March and April, then the pattern for total construction starts would be the following – March, down 3%; April, up 14%; and May, up 4%.
"Excluding the lift coming from this year's nuclear power projects, the pattern for construction starts shows a loss of momentum through March, followed by strengthening activity in April and May," stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. "The overall level of activity so far this year, without the nuclear power projects, is actually running slightly behind 2011, but at least the recent trend has been upward after a particularly weak start to 2012. The picture of a construction market that's struggling to achieve upward momentum, with gains for some project types but losses for other project types, continues to hold true. Housing is edging upward, as earlier advances for multifamily housing are now being joined by gradual growth for single family housing. The commercial building sector has registered slight improvement from the extremely depressed amount back in 2010, but its upturn remains tenuous. On the down side, the institutional structure types and public works construction still face diminished funding from the federal, state, and local levels of government."
Nonbuilding construction in May dropped 47% to $132.1 billion (annual rate). A large share of the nonbuilding downturn was the result of a 71% plunge for the electric utility category, following its exceptionally strong volume in April which reflected the start of work at the Summer nuclear facility in South Carolina. If the Summer project is excluded from the April statistics, then electric utility construction in May would be up 11%, while nonbuilding construction would be down a more moderate 9%. The rate for electric utility construction in May was still relatively high, coming in just 8% below its average monthly pace during 2011. Support for the electric utility category in May came from the start of several large wind power projects – $803 million for phase 2 of a massive wind farm in California, $236 million for a wind farm in Hawaii, and $210 million for a wind farm in Iowa. Other large electric utility projects in May included a $721 million gas-fired power plant in Louisiana, a $700 million power line project in Minnesota and South Dakota, and a $270 million solar power plant in Nevada. The public works sector in May resumed its downward trend, retreating 16% after its brief upturn in April. Highway and bridge construction in May slipped 3%, with activity coming in 12% below the average monthly pace for these categories during 2011. The "miscellaneous" public works category, which includes mass transit, plunged 40% in May, after being lifted in April by an $877 million segment of the Eagle P3 commuter rail project in the Denver CO area. Although down in May, the "miscellaneous" public works category did include the start of a $160 million light rail project in Oregon. The environmental public works categories showed decreased contracting in May, with sewers down 3%, river/harbor development down 23%, and water supply systems down 24%. The decline for water supply systems came despite the start of a $161 million water filtration facility in the state of Washington.
Nonresidential building, at $153.9 billion (annual rate), climbed 12% in May. The institutional side of the nonresidential market showed moderate improvement for the second month in a row, after a weak start to 2012, although its rate in May was still 13% below its average monthly pace during 2011. The educational building category jumped 22% in May, helped by the start of two large museum projects – the $290 million
National Museum of African-American History and Culture in Washington DC and a $100 million art museum in Los Angeles CA. Other large educational projects reported as May starts included a $100 million center for energy and the environment at Princeton University in Princeton NJ, and the $100 million
Park Avenue Armory redevelopment project in New York NY. Transportation terminal work in May soared 134%, helped by the start of the $160 million Delta Airlines hub redevelopment at LaGuardia Airport in New York NY. The public buildings category (which includes courthouses and detention facilities) increased 16% in May, helped by the start of a $169 million courthouse renovation in Los Angeles CA. On the negative side, the healthcare facilities category in May decreased 29% after an elevated April, although May did include the start of large healthcare projects in Chicago IL ($199 million) and Jefferson City MO ($140 million). Reduced contracting in May was also reported for amusement-related work, down 20%; and churches, down 12%.
The commercial categories in May were mixed. Office construction climbed 32%, with May coming in 17% above the category's average monthly pace during 2011. Large office projects that reached groundbreaking in May included a $200 million data center in Clifton NJ, a $120 million corporate headquarters for Panasonic in Newark NJ, and a $99 million expansion to a corporate headquarters for Hyundai in Fountain Valley CA. Hotel construction in May jumped 48%, with support coming from $100 million estimated for the hotel portion of the $300 million Baccarat Luxury Hotel and Condominium project in New York NY. In contrast, store construction in May retreated 29% after its improved April volume, while warehouse construction slipped 16%. The manufacturing plant category in May contributed to the gain for nonresidential building, surging 108% with the help of such projects as a $346 million metals processing facility in North Carolina, a $217 million automotive plant in Alabama, and a $120 million biofuels waste-to-ethanol plant in Nevada.
Residential building in May increased 8% to $158.9 billion (annual rate). Multifamily housing showed renewed strength after pausing in April, rising 33%, with May coming in 35% above this category's average monthly pace during 2011. Large multifamily projects in May included $200 million estimated for the condominium portion of the Baccarat Luxury Hotel and Condominium project in New York NY, $117 million estimated for the apartment portion of a large mixed-use project in New York NY, and $87 million for an apartment building complex in Boston MA. Single family housing in May grew 2%, and since February 2011 the dollar amount for single family housing has shown slight gains in twelve out of fifteen months. The May volume for single family housing was 24% above its average monthly pace during 2011. Murray noted. "While single family housing still remains at an extremely low level, it has been showing small yet steady gains for more than a year now, indicating that its modest upward trend is beginning to acquire some traction."
The 6% increase for total construction starts on an unadjusted basis during the first five months of 2012 was the result of greater activity for two of the three main construction sectors. Residential building year-to-date advanced 24%, with similar growth for single family housing, up 23%, and multifamily housing, up 26%. Nonbuilding construction climbed 20% year-to-date, the result of a 74% surge for electric utilities combined with a 5% reduction for public works. Nonresidential building was the one major sector to report a year-to-date decline, falling 18%, with decreased activity for these segments – commercial building, down 5%; institutional building, down 21%; and manufacturing plants, down 38%. The year-to-date decline for nonresidential building has been getting smaller as 2012 has progressed, although it still reflects the comparison to the briefly elevated amount during the early months of 2011, which included such projects as the $1.2 billion redevelopment of the Delta Terminal at New York's JFK International Airport, the $1.1 billion National Security Agency data center in Utah, and a $900 million semiconductor plant in Oregon.
By geography, total construction starts during the first five months of 2012 showed a large gain in the South Atlantic, up 67%, lifted by work at the nuclear power facilities in Georgia and South Carolina. The Midwest showed an 8% year-to-date gain, while declines were reported in the Northeast, down 8%; the West, down 11%; and the South Central, down 14%.
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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.
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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.mcgraw-hill.com/.