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July Construction Retreats 10 Percent

By Mark S. Kuhar

The value of new construction starts dropped 10 percent in July to a seasonally adjusted annual rate of $394.7 billion, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies. The decline followed a 15 percent gain in June, and returned total construction to the lower end of its recent range. For the January-July period of 2011, total construction starts on an unadjusted basis came in at $235.0 billion, down 6 percent from the same period a year ago. Highway construction in July jumped 27 percent.

“The construction start statistics continue to show an up-and-down pattern, as sporadic gains have yet to make the transition to more sustained expansion,” stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. “This behavior might be characterized as ‘bouncing along the bottom,’ following the sharp downturn for construction starts that took place in 2008 and 2009. Single family housing remains stalled at a low volume, not able to perform its more typical role of leading a construction upturn. The tight fiscal conditions at the federal, state and local levels of government are restraining the public works and institutional building sectors, and the recent debt ceiling agreement points toward further restraint.”

Nonbuilding construction in July fell 23 percent to $126.2 billion (annual rate). The electric utility category pulled back 69 percent, after its robust volume in June that saw contracting soar 103 percent. June had been boosted by the start of two large transmission line projects as well as 13 large power plants, valued each at $100 million or greater. While July included the start of several large electric utility projects, they were fewer in number than what took place in June. There were four electric utility projects in July valued each at $100 million or greater.

The public works sector in July strengthened 20 percent, in a departure from what has been generally a downward trend during 2011. Highway construction in July jumped 27 percent, boosted by the start of the $575 million Capital Beltway project in northern Virginia. Bridge construction in July surged 47 percent, aided by the start of a $98 million bridge replacement project in Texas. The “miscellaneous” public works category, which includes mass transit, advanced 32 percent in July, and river/harbor development bounced back 29 percent after a subdued June. Two public works categories lost momentum in July – sewers, down 2 percent; and water supply systems, down 20 percent.

Nonresidential building, at $144.5 billion (annual rate), dropped 6 percent in July due partly to the commercial building sector retreating after its improved performance in June. The retail categories in July continued to languish, with stores down 9 percent and warehouses down 10 percent. Office construction in June had been aided by the start of several large projects, but with fewer large projects in July, office construction descended 9 percent. Hotel construction in July was down 32 percent from the previous month. Running counter to the declines for commercial building in July was a substantial gain for the manufacturing building category, which jumped 190 percent.

The institutional side of the nonresidential market showed a mixed performance by project type. Healthcare facilities dropped 55 percent in July after elevated activity in the previous two months. Other July declines were reported for amusement-related projects, down 45 percent; and the public buildings category, down 21 percent. On the plus side, the educational building category climbed 12 percent. Two of the smaller institutional categories posted strong percentage gains in July after a very weak June – transportation terminals, up 44 percent; and churches, up 48 percent; although the levels for both of these project types remain weak by recent historical standards.

Residential building in July grew 3 percent to $124.0 billion (annual rate). Like the previous month, the upward push in July for residential building came from multifamily housing, which climbed 19 percent. The single family side of the housing market slipped 1 percent in July. Residential building year-to-date dropped 8 percent.

By geography, total construction starts during the first seven months of 2011 compared to last year showed a gain for one region, the West, up 10 percent. Year-to-date declines were reported for the other four regions – the South Central, down 9 percent; the South Atlantic, down 10 percent; and the Midwest and Northeast, each down 12 percent.