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October Construction Falls 14 Percent
November 20, 2012 - New York, NY
The value of new construction starts retreated 14% in October to a seasonally adjusted annual rate of $434.9 billion, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies. Much of the decline was due to a sharp pullback by the electric power and gas plant category after a robust September. If this volatile project type is excluded from the month-to-month comparisons, total construction starts in October would register a 3% gain. Greater activity was reported in October for the public works sector, while both nonresidential building and housing settled back. Through the first ten months of 2012, total construction starts on an unadjusted basis came in at $390.4 billion, a 4% gain relative to the same period a year ago.
The October statistics brought the Dodge Index to 92 (2000=100), down from the 107 reported for September. Over the first ten months of 2012, the Dodge Index has fluctuated within the range of 85 to 116, averaging 97 during this period. "This year's pattern for total construction has been shaped to some degree by the swings for the electric utility and gas plant category, which is still on track to achieve a new annual high in current dollar terms, even with its weak October performance," stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. "Leaving out electric utilities and gas plants, the amount of construction starts in 2012 would be up 3% through the first ten months, which reflects a mixed pattern by project type. For housing, the emerging recovery for single family housing is joining the strengthening trend for multifamily housing that's already underway. For nonresidential building, commercial building is seeing modest growth in 2012, but this has been offset by declines for institutional building and manufacturing plant construction. Public works year-to-date has been basically flat, beginning to stabilize after its 14% downturn in 2011. While the pattern of overall construction activity does seem to be moving towards more broad-based expansion, the persistent uncertainty affecting the U.S. economy continues to pose a downside risk. The degree to which policymakers in Washington DC are able to agree on the steps necessary to avert the fiscal cliff will determine whether the nascent upturn for construction continues to grow in 2013 or slides back."
Nonbuilding construction in October dropped 32% to $133.4 billion (annual rate), retreating after the prior month's 68% jump. September had been lifted by a 335% surge for the electric utility and gas plant category, as a $4.8 billion liquefied natural gas plant (the Sabine Pass Liquefaction Project) was included as a September start, along with six power plant and transmission line projects valued each in excess of $100 million. For October, the largest electric utility and gas plant project was $88 million for transmission line work in Massachusetts, contributing to a 93% decline for the category. In contrast, the public works sector in October climbed 19%. The miscellaneous public works category, which includes such diverse project types as site work, mass transit, and pipelines, soared 52% in October. The boost to miscellaneous public works came from $2.0 billion related to work on the Keystone Pipeline Gulf Coast Expansion, located in Oklahoma and Texas. Highway construction in October advanced 23%, aided by $900 million for work on the I-95 HOV/HOT Lanes project in Virginia. The large increase marked a departure from what has been a declining trend in 2012 for highway construction, which on a year-to-date basis was still down 11%. Bridge construction in October retreated 7%, although the month did include $94 million for bridge reconstruction work in Ohio. The environmental public works categories were led by a 41% increase for river/harbor development, which reflected the start of a $331 million explosives handling wharf in the state of Washington. Sewers and water supply systems dropped a respective 16% and 5% in October.
Nonresidential building, at $131.6 billion (annual rate), decreased 4% in October. The manufacturing plant category plunged 73%, continuing to pull back from the improved activity that was reported earlier in 2012. Murray noted, "As the result of the uncertainty created by the looming fiscal cliff, manufacturers have increasingly held back on investment as 2012 has progressed." Warehouse construction also weakened substantially in October, falling 33%. Office construction in October slipped 3%, although the month did include the start of several noteworthy projects – the $216 million Tower at PNC Plaza in Pittsburgh PA, the $110 million Energy Center III office tower in Houston TX, a $76 million municipal office building in Boston MA, and a $50 million corporate headquarters renovation for TJX in Marlborough MA. On the plus side, hotel construction in October grew 7%, helped by the start of a $189 million hotel in Austin TX. Store construction also registered a gain in October, rising 3% with the help of the $101 million retail portion of the $250 million City Point Residential Retail Development Project (Phase 2) in Brooklyn NY.
On the institutional side, the educational facilities category continued to lose momentum, dropping 3%. Even with the decline, several large education projects reached groundbreaking in October, including a $95 million facility for the University of Tennessee in Knoxville TN, as well as two large high school projects in Massachusetts. More considerable October declines were registered by amusement-related work, down 22%; and transportation terminals, down 50%. The public buildings category posted a large October gain, climbing 92% due to the start of a $524 million military facility at Offutt Air Force Base in Nebraska Healthcare facilities also registered a large October gain, advancing 37% with the help of five hospital projects valued each in excess of $100 million. These hospital projects were located in Virginia ($215 million), Iowa ($150 million), Florida ($111 million), North Carolina ($104 million) and Ohio ($102 million). Church construction in October edged up 1%, although activity continues to be very depressed.
Residential building in October dropped 2% to $169.9 billion (annual rate). The downward pull came from multifamily housing, which retreated 7% from September. During 2012, multifamily housing has fluctuated around an upward trend, and the pace for multifamily housing in October was still 23% above the level reported at the start of the year. Large multifamily projects that reached groundbreaking in October included the $200 million Insignia Residential Towers in Seattle WA and $149 million for the multifamily portion of the City Point project in Brooklyn NY. Single family housing in October was unchanged from September, maintaining the enhanced activity that's been established over the course of 2012. The October single family amount was up 25% from the level reported at the start of the year, and this project type had earlier shown gains in seven out of the nine preceding months. During the January-October period of 2012, the regional pattern for single family housing showed the largest increase in the West, up 39%; followed by the Midwest, up 28%; the South Atlantic, up 26%; the South Central, up 22%; and the Northeast, up 14%.
The 4% pickup for total construction on an unadjusted basis during the first ten months of 2012 was the result of increases for two of the three main construction groups. Residential building advanced 28%, with year-to-date gains of 27% for single family housing and 30% for multifamily housing. Nonbuilding construction grew 3% year-to-date, the result of combining an 11% increase for the electric utility and gas plant category and "no change" for public works. Nonresidential building continued to be the one major construction group to register a year-to-date decline, falling 14%. The nonresidential building decline was due to this behavior by segment – commercial building, up 2%; institutional building, down 15%; and manufacturing building, down 47%. To a large extent, the nonresidential building decline in dollar terms comes from the comparison to several massive projects that reached groundbreaking during the first ten months of 2011, including a $3.0 billion coal-to-gasoline plant in West Virginia, a $1.5 billion semiconductor plant in Arizona, a $1.2 billion airport terminal in New York, and a $1.1 billion government data center in Utah. On a square footage basis, nonresidential building in the first ten months of 2012 was up 1% compared to a year ago.
By geography, total construction starts during the January-October period of 2012 showed a large gain for the South Atlantic, up 24%, with much of the upward push coming from the start of two massive nuclear power projects in Georgia and South Carolina. If these two projects are excluded, then total construction starts in the South Atlantic would be up only 1%. Year-to-date gains for total construction were also reported for the Midwest, up 6%; and the South Central, up 5%. Year-to-date declines for total construction were reported for the Northeast, down 6%; and the West, down 8%.
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