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New Construction Starts in December Decline 3 Percent

By Mark S. Kuhar

New construction starts in December fell 3 percent to a seasonally adjusted annual rate of $410.0 billion, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies. Nonresidential building in December held steady with the prior month, and residential building was able to show modest improvement. However, the nonbuilding construction sector lost momentum in December, as electric utilities retreated from the record pace witnessed earlier in the year.

Highway and bridge construction rose 4 percent.

“The pace of new construction starts continues to fluctuate within a set range, showing stability in a broad sense but not yet making the transition to renewed expansion,” said Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. “Gains for a few project types are being offset by continued weakness for other project types, with the result that total construction is experiencing an extended bottom. During 2011, stronger activity was reported for multifamily housing, manufacturing plants, electric utilities, and even some commercial property types (hotels and warehouses). These gains were countered by further declines for the publicly financed parts of the construction industry, institutional building and public works, as well as by more weakness for single family housing. For 2012, it’s expected that there will also be a mixed pattern by project type. The pluses may be able to outweigh the minuses, should the recent pickup in employment growth be accompanied by greater real estate lending by the banking industry, but this year will also see the constraint of diminished federal and state funding support for construction programs.”

Nonresidential building in December, at $142.6 billion (annual rate), was essentially unchanged from November. The institutional categories featured a 9 percent gain for education-related construction. The depressed public buildings category showed a brief upturn in December, climbing 118 percent. Transportation terminal work in December jumped 98 percent. Moving in the opposite direction for December were healthcare facilities, down 55 percent; and recreation-related projects, down 12 percent.

Church construction in December was unchanged from the previous month. The commercial categories in December were led by a large gain for hotels, up 65 percent. Greater activity was also reported for warehouses, up 42 percent; and stores, up 4 percent; but office construction retreated 26 percent. The manufacturing plant category in December did include the start of several large projects, but for the month this category was still down 3 percent.

Nonbuilding construction in December dropped 10 percent to $122.9 billion (annual rate), continuing to slide back after the robust contracting reported during September and October. Electric utility construction in December plunged 50 percent. The pace for new electric utility starts in December was the slowest for 2011, providing some indication that this category is now beginning to settle back after the exceptional activity reported for most of the year.

The public works categories in December generally showed some strengthening, with highway and bridge construction up 4 percent, water supply systems up 5 percent, sewers up 8 percent, and “miscellaneous public works” (which includes mass transit and site work) up 10 percent. River/harbor development was the one public works category that retreated in December, slipping 2 percent.

Residential building in December edged up 2 percent to $144.4 billion (annual rate), the result of a 2 percent gain for single-family housing while multifamily housing held steady with its heightened amount of the previous month. After weakening during the first half of 2011, single family housing during the second half of the year showed modest gains, such that the rate in December was 9 percent above the average monthly pace for the prior year.

Multifamily housing in December was helped by the start of several large projects around the country.