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August Construction Advances 8 Percent

By Mark S. Kuhar

At a seasonally adjusted annual rate of $433.9 billion, new construction starts in August climbed 8 percent compared to July, as reported by McGraw-Hill Construction, a division of The McGraw-Hill Companies. After declines in the previous three months, the August pickup was the result of greater activity for each of construction’s three main groups – nonresidential building, residential building and nonbuilding construction. During the first eight months of 2012, total construction starts on an unadjusted basis came in at $304.5 billion, up 3 percent from the same period a year ago.

The August statistics raised the Dodge Index to 92 (2000=100), up from July’s 85. After reaching 114 in April, which was lifted by the start of a massive nuclear power plant in South Carolina, the Dodge Index then retreated through July. With its August rebound, the Dodge Index has returned to the average level that was reported for all of 2011.

“The pattern of construction starts continues to exhibit an up-and-down pattern, with the end result being that overall construction activity has yet to show much in the way of sustained growth,” stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction.

“Gains for some project types continue to be offset by declines for other project types. So far in 2012, housing has been one of the brighter areas for construction – multifamily housing is strengthening, and single family housing is finally registering steady growth, although in a very gradual manner. The commercial project types have shown hesitant upward movement, while this year’s earlier weakness for the institutional sector seems to be easing a bit. Electric utility construction is seeing another year of exceptionally strong activity, but the public works sector continues to deal with spending limitations. If overall construction activity is to establish a more solid upward trend, the degree of uncertainty surrounding the U.S. economy needs to recede, which may prove difficult to achieve in the near term given the impending ‘fiscal cliff’ at the end of 2012.”

Nonresidential building in August grew 7 percent to $147.7 billion (annual rate). Much of the boost in August came from the institutional categories, in contrast to this sector’s generally weak performance during most of 2012. Educational facilities in August increased 17 percent. Several university-related projects also contributed to the August gain for educational facilities.

The transportation terminal category in August jumped 111 percent, reflecting $325 million for work on a subway station in New York and a $200 million expansion to the JetBlue terminal at New York’s JFK International Airport. The amusement category in August climbed 23 percent, while church construction grew 11 percent from a depressed July. Institutional categories that retreated in August were healthcare facilities and public buildings, as each dropped 11 percent.

Several commercial categories in August lost momentum, slipping back after the improvement shown earlier this year. Store construction in August fell 10 percent from July, while warehouse construction decreased a more substantial 29 percent. At the same time, both stores and warehouses were able to hold onto year-to-date gains compared to last year, rising 10 percent and 3 percent, respectively. Office construction in August retreated 5 percent. Showing slight growth in August was hotel construction, which edged up 2 percent. Manufacturing plant construction in August also posted a slight gain, increasing 1 percent.

Residential building, at $168.9 billion (annual rate), climbed 9 percent in August. Multifamily housing bounced back 35 percent after pausing in July, matching its strong June pace. Through the first eight months of 2012, the most active metropolitan areas in terms of the dollar volume of new multifamily starts were: New York, Washington, D.C., Los Angeles, Miami and Boston.

Single family housing in August grew 3 percent, and has shown small yet steady gains during the first eight months of 2012, such that the amount in August was 22 percent higher than at the end of last year. The August gain for single family housing included increases for four major regions – the Midwest, up 5 percent; the West, up 4 percent; the South Central, up 2 percent; and the South Atlantic, up 1 percent; while the Northeast settled back 2 percent.

Nonbuilding construction in August increased 8 percent to $117.3 billion (annual rate). After the steep declines of the previous three months, electric utility construction in August surged 103 percent. The public works categories in August included gains for two project types – bridges, up 28 percent; and “other public works” (which includes pipelines, mass transit, and site work), up 19 percent.

In contrast, weaker activity in August was reported for the remaining public works categories – sewer systems, down 2 percent; streets and highways, down 4 percent; water supply systems, down 10 percent; and river/harbor development, down 51 percent.

The 3 percent rise for total construction starts on an unadjusted basis during the first eight months of 2012 reflected greater activity for two of the three main construction groups. Residential building advanced 25 percent, with both its single family and multifamily segments increasing by that percentage amount. Nonbuilding construction grew 3 percent year-to-date, as a 17 percent gain for electric utilities outweighed a 2 percent drop for public works. Nonresidential building year-to-date ran counter to the other two main construction groups, sliding 13 percent. The nonresidential building decline was due to this pattern by segment – commercial building, down 2 percent; institutional building, down 17 percent; and manufacturing building, down 30 percent.

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 region, total construction starts during the first eight months of 2012 featured a large gain for the South Atlantic, up 37 percent, with much of the boost coming from the start of two massive nuclear power projects in Georgia and South Carolina. Total construction starts in the Midwest were up 5 percent year-to-date, but declines were reported for the West and Northeast, each down 7 percent; and the South Central, down 8 percent.

New Home Sales Stay Strong

Following a substantial gain in July, the pace of new-home sales held virtually unchanged at a seasonally adjusted annual rate of 373,000 units in August, according to newly released figures from HUD and the U.S. Census Bureau.

“New-home sales in August effectively tied the pace they set in the previous month, when they were the strongest we've seen in more than two years – so this is really a continuation of the good news we've been getting on the housing front,” said Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) and a home builder from Gainesville, Fla. “Looking at the big picture, sales have been trending gradually upward since the middle of last year as favorable interest rates and prices have driven more consumers to get back in the market for a newly built home.”

“This latest report indicates that new-home sales continue to run at a steady pace that's well ahead of what we were seeing this time last year, and at this rate, the third quarter of 2012 is going to be well ahead of the second quarter,” noted NAHB Chief Economist David Crowe. “That said, the razor-thin inventory of new homes for sale is very concerning because it indicates that builders aren't able to access the credit they need to build new homes as demand for them improves.”

Crowe also observed that the share of new homes sold in the higher price ranges ($400,000 and above) rose significantly in August. “This reflects the fact that people who are able to buy homes right now are those in higher-income ranges who have cash and equity on hand, while first-time buyers are having a tougher time getting qualified for a mortgage,” he said.

Regionally, new-home sales gained in all but one area of the country this August, with the Northeast, Midwest and West posting increases of 20 percent, 1.8 percent and 0.9 percent, respectively. The South was the only region to post a decline of 4.9 percent.