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June Construction Starts Retreat 15 Percent

Highway and Bridge Construction Advances 16 Percent; First Six Months of 2015 Up 23 Percent.

By Mark S. Kuhar


New construction starts in June dropped 15 percent from the previous month to a seasonally adjusted annual rate of $620.2 billion, according to Dodge Data & Analytics. The decline followed an especially strong May, which benefitted from a $9.0 billion liquefied natural gas (LNG) export terminal in Texas being entered as a May start.

By major sector, nonbuilding construction in June fell sharply as the result of a steep pullback by its electric utility and gas plant category, while nonresidential building witnessed a less severe loss of momentum. Residential building in June was able to post a slight gain, helped by the continued strength for multifamily housing.

Highway and bridge construction in June advanced 16 percent.

“Notwithstanding the up-and-down pattern that’s been present on a monthly basis during the first half of 2015, the construction start statistics show that the expansion continues, with a few nuances,” stated Robert A. Murray, chief economist for Dodge Data & Analytics. “The 23 percent year-to-date increase for total construction overstates the strength of the expansion, and the underlying rate of growth is likely around 10 percent. The lift to total construction starts in early 2015 by the electric power and gas plant category, namely several huge LNG terminals, will subside as the year proceeds. Public works construction revealed surprising strength during the first half of 2015, but it too is expected to subside given essentially flat federal funding. On the plus side, Congress has moved closer in July to taking the needed steps to shore up the depleted Highway Trust Fund. For nonresidential building, the institutional building segment has maintained the upward track established last year, and manufacturing plant construction has included the start of a few more petrochemical plants. On a mildly cautionary note, the commercial building segment showed some deceleration during the first half of 2015. Continued improvement in real estate market fundamentals should encourage a faster pace for commercial projects going forward. Residential building is seeing more growth for multifamily housing, and single family housing is now edging upward, albeit in a very gradual and hesitant manner.”

Nonbuilding Construction

Nonbuilding construction in June plunged 38 percent to $162.5 billion (annual rate). The electric utility and gas plant category fell 80 percent, after surging 229 percent in May with the start of a $9.0 billion LNG export terminal in Corpus Christi, Texas, as well as three large power plants valued each in excess of $500 million.

 Monthly Construction Starts (Seasonally Adjusted Annual Rates, In Millions of Dollars) June 2015

May 2015 

% Change
Nonresidential Building $190,586 $206,668 -8
Residential Building $267,124 $261,527 +2
Nonbuilding Construction $162,466 $261,574 -38
TOTAL Construction $620,176 $729,769 -15

June did include the start of several large power plants, including an $800 million gas-fired power plant in Massachusetts and three wind farms located in Texas ($450 million), North Dakota ($320 million) and Rhode Island ($300 million), but these were generally smaller in scale than the massive projects entered as May starts.

The public works categories as a group increased 15 percent in June, showing improvement after slipping back during the previous two months. Highway and bridge construction in June advanced 16 percent, helped by the start of large highway projects in North Carolina ($368 million) and California ($253 million), as well as a bridge rehabilitation project in Massachusetts ($148 million).

The miscellaneous public works category grew 28 percent after a weak May, supported by the start of an $80 million outdoor stadium improvement project at Florida State University in Tallahassee, Fla.
On the environmental side, June gains were reported for sewer construction, up 19 percent; and water supply construction, up 3 percent; while river/harbor development held steady with the previous month.

Nonresidential Building

Nonresidential building, at $190.6 billion (annual rate), retreated 8 percent in June, as weaker activity was reported for the majority of the structure types. The commercial building group fell 13 percent following its 17 percent increase in May. Both stores and warehouses weakened in June, dropping 9 percent and 53 percent, respectively, while hotel construction slipped 11 percent from its heightened May amount.

Despite its May decline, hotel construction in June did see the start of several large projects, including a $411 million hotel resort in Lahaina, Hawaii, and a $97 million hotel in Charleston, S.C.

Office construction in June ran counter to the other commercial structure types, advancing 11 percent from the previous month. Large office projects that reached groundbreaking in June were $575 million for the office portion of the $618 million Manhattan West project in New York, a $202 million office building in Denver, and a $95 million office building on Roosevelt Island in New York as part of the Cornell NYC Tech Campus development.

Manufacturing plant construction in June bounced back 86 percent from a weak May, and included such projects as a $600 million refinery expansion in Texas and a $200 million ethanol plant upgrade in Nevada.

The institutional building group in June settled back 9 percent, as all the structure types except educational facilities experienced weaker activity. Healthcare facilities dropped 10 percent from its elevated May pace, although June did see groundbreaking for several large healthcare projects, such as a $520 million hospital expansion in Houston; a $230 million hospital in Lakeland, Fla.; and a $220 million hospital in Fremont, Calif.
The amusement-related category dropped 21 percent, yet June did see the start of such projects as a $102 million sports arena upgrade in San Antonio and a $100 million expansion to the Anaheim Convention Center in Anaheim, Calif.

Residential Building

Residential building in June grew 2 percent to $267.1 billion (annual rate), after slipping 2 percent in May. Multifamily housing provided the upward push, rising 8 percent, showing further growth on top of the gains reported earlier in the year.

There were eight multifamily projects valued each at $100 million or greater that reached groundbreaking during June, led by $218 million for the multifamily portion of the $250 million Ballpark Village in San Diego, a $217 million multifamily complex in Miami, and $191 million for the multifamily portion of a $250 million mixed-use building in Brooklyn, N.Y.

Single-family housing in June remained at the dollar amount reported for May, as the faint signs of an upward trend are still subject to hesitation on a month-to-month basis.

Six-Month Update

During the first six months of 2015, total construction starts on an unadjusted basis were reported at $336.0 billion, up 23 percent from the same period a year ago, according to Dodge Data & Analytics.

The 23 percent gain for total construction starts came from a varied pattern by geography. The strongest year-to-date gain was reported in the South Central region, up 57 percent, which reflected the boost coming from the massive gas terminal projects that were entered as construction starts plus several large petrochemical plants.

For the first six months of 2015, nonbuilding construction jumped 62 percent compared to the same period a year ago. The public works categories as a group were up 14 percent in the first half of 2015, helped by a strong showing for highway and bridge construction that advanced 30 percent relative to a sluggish first half of 2014.

The top five states ranked by the dollar amount of highway and bridge construction starts during the first half of 2015 were the following – Florida (reflecting the start of a $2.3 billion upgrade to Interstate 4), California, Texas, New York and Illinois. The environmental public works categories showed a varied performance during the first half of 2015, with sewer construction, up 19 percent; water supply construction, up 6 percent; and river/harbor development, down 2 percent. The miscellaneous public works category decreased 15 percent from its first half 2014 pace, which featured the start of several large mass transit projects.

At the six-month mark of 2015, nonresidential building increased 4 percent compared to a year ago. The commercial building group held steady with its year ago pace, aided by a substantial 41 percent increase for hotel construction but dampened by declines for stores, down 3 percent; office buildings, down 8 percent; and warehouses, down 12 percent.

For the first six months of 2015, residential building in dollar terms was up 17 percent from the same period a year ago, showing some improvement from the 10 percent annual gain reported for 2014. Multifamily housing registered a year-to-date increase of 29 percent, maintaining the upward movement that’s been present over the past five years.

Single-family housing year-to-date was up 13 percent, reflecting both the comparison to the lackluster volume in the first half of 2014 and the slight yet uneven improvement that emerged in the second half of 2014 and has carried over into 2015.