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Highway Construction Posts Gains in 2010

New construction starts in December climbed 19 percent to a seasonally adjusted annual rate of $450.2 billion, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies. Nonresidential building rebounded after a weak November, and nonbuilding construction was lifted by the start of several large electric utility projects. Gains were registered by highway construction, which rose 7 percent. Meanwhile, residential building in December showed slight growth, continuing the gradual upward trend of recent months.

For 2010 as a whole, total construction starts dropped 2 percent to $412.5 billion, a less severe decline than the 24 percent plunge for 2009. Highway construction (the largest public works category) was still able to post a 3 percent gain for the year as a whole.

The December statistics produced a reading of 95 for the Dodge Index (2000=100), up from November’s 80. For all of 2010, the Dodge Index came in at 87. “The construction start statistics during the past year fluctuated over a set range, with December coming in at the high end of that range while November was at the low end,” said Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. “In effect, the pace of contracting has stabilized, after the steep correction of prior years, although renewed expansion for total construction has yet to take hold given this ongoing up-and-down pattern. The year 2010 did include some positive developments, such as the initial stage of recovery for housing while the rate of descent for commercial building eased. However, institutional building lost further momentum, and public works construction began to retreat. For 2011, overall construction activity would benefit if the U.S. economy can show more solid job growth and loan availability improves, but tight government budgets will remain a constraint.”

Nonresidential Building

Nonresidential building in December climbed 25 percent to $159.2 billion (annual rate). Leading the way was a 172 percent surge for healthcare facilities, which reflected the start of six massive hospital projects valued each at $200 million or greater. At the top of the list was the $1.0 billion medical center for the University of California at San Francisco, followed by the $690 million Parkland Hospital replacement in Dallas. Transportation terminal work also showed a large increase in December, rising 127 percent, with the push coming from the start of a $450 million airport terminal modernization at Love Field in Dallas.

The educational building category in December rose 7 percent, helped by the start of the $225 million George W. Bush Presidential Library in Dallas, while amusement-related work increased 3 percent. Institutional categories that lost momentum in December included public buildings, down 19 percent; and churches, down 15 percent.

On the commercial side, office construction in December advanced 56 percent, aided by the start of four large data centers located in Pryor, Okla., ($300 million), Chaska. Minn., ($100 million), Quincy, Wash., ($36 million), and Forest City, N.C. ($25 million). Hotel construction in December rose 11 percent, due to the start of a $100 million hotel renovation project in New York. Store construction in December grew 4 percent, but warehouse construction fell 35 percent. Manufacturing plant construction in December plummeted 68 percent, following its elevated amount in November.

For 2010 as a whole, nonresidential building dropped 9 percent to $152 billion. The commercial sector retreated 17 percent, not as steep as the 43 percent decline that was reported for 2009. Store construction fell a relatively moderate 8 percent, as a steady volume of renovation work partially offset decreased activity for projects classified as new and additions.

The other major commercial categories were not able to show the same resilience, as they registered these 2010 declines – warehouses, down 21 percent; offices; down 24 percent; and hotels, down 29 percent. The office category in 2010 continued to see large government-related projects reach groundbreaking (such as the $369 million headquarters for the U.S. Coast Guard in Washington, D.C.), although not to the same extent as what took place in 2009. At the same time, the office category in 2010 received support from more data center work, groundbreaking for several corporate headquarters, and a few instances where deferred projects resumed construction, such as the World Trade Center Tower 3 in New York. Manufacturing plant construction in 2010 fell 15 percent, a more moderate loss of momentum compared to the 68 percent slide for 2009.

The institutional sector in 2010 dropped 6 percent, as tighter fiscal conditions restrained construction for several institutional structure types. The educational building category fell 6 percent, reflecting weaker activity for K-12 school construction while university-related projects held steady in dollar terms. The public buildings category plunged 35 percent, as groundbreaking for new courthouses and military-related work subsided. Church construction in 2010 retreated an additional 31 percent, and amusement-related projects slipped 6 percent. On the plus side, healthcare facilities increased 12 percent in 2010, aided by the start of numerous large hospital projects, as this category began to rebound after its 33 percent downturn in 2009. Transportation terminal work in 2010 grew 20 percent, helped by the start of such massive projects as the $3.0 billion transit hub in lower Manhattan, N.Y., and $1.1 billion for terminal work at Los Angeles International Airport.

Residential Building

Residential building in December grew 3 percent to $128 billion (annual rate), showing modest improvement for the fifth straight month after the pullback during the spring and summer. Single-family housing in December edged up 2 percent, while multifamily housing advanced 7 percent. The multifamily projects that reached groundbreaking in December continued to be moderate in scope, compared to the large-scale projects of a few years ago, with the largest December multifamily project being a $72.6 million apartment building in New York.

The 2010 amount for residential building was $119.4 billion, up 7 percent, and a noteworthy change from the decline over the previous four years that saw contracting fall 71 percent in dollar terms from the 2005 peak. Single-family housing in 2010 registered a dollar volume gain of 6 percent, following a 23 percent decline in 2009. The regional pattern for single family housing in 2010 showed increases for all five regions – the Northeast, up 13 percent; the South Atlantic, up 9 percent; the Midwest, up 7 percent; the West, up 5 percent; and the South Central, up 2 percent.

Multifamily housing in 2010 rose 11 percent in dollar terms, following a 55 percent decline in 2009. The regional pattern for multifamily housing also showed increases for all five regions – the West, up 19 percent; the South Atlantic and South Central, each up 15 percent; the Midwest, up 14 percent; and the Northeast, up 1 percent. Murray noted, “The first year of recovery for single family housing turned out to be very tentative, as potential homebuyers held back given uncertainty related to the job outlook and home prices. At the same time, the pickup for multifamily housing was one of the more positive features of the 2010 construction market, and growing interest from developers should help multifamily housing stay on an upward track in 2011.”

Nonbuilding Construction

Nonbuilding construction in December climbed 29 percent to $163 billion (annual rate), boosted by an exceptionally strong amount of new electric utility projects. The electric utility category in December soared 227 percent, lifted by the start of a $1.9 billion transmission line project in California, as well as another $783 million transmission line project in Massachusetts and Connecticut.

Furthermore, several large power plant projects were included as construction starts in December, such as a $500 million solar plant in Arizona, a $350 million gas-fired plant in California, and a $250 million conversion of a coal-fired plant to a biomass-fueled plant in Wisconsin. The public works categories in December were mixed. Gains were registered by highway construction, up 7 percent; and water supply systems, up 26 percent. Decreased activity was reported for river/harbor development, down 2 percent; bridge construction, down 11 percent; miscellaneous public works (site work, mass transit, pipelines), down 25 percent; and sewer construction, down 34 percent. Despite its December decline, the miscellaneous public works category did include $431 million for subway line related work in New York.

For the full year 2010, nonbuilding construction slipped 1 percent to $141.1 billion. Public works construction in 2010 fell 4 percent, retreating after a slight 1 percent gain in 2009. This shift reflected fading stimulus support as well as the negative impact from mounting fiscal stress for states and localities.

The environmental project types registered these 2010 declines – river/harbor development, down 16 percent; sewers, down 14 percent; and water supply systems, down 4 percent. The miscellaneous public works category dropped 7 percent, as a decreased amount of site work and rail-related projects outweighed an increase for pipelines. Bridge construction in 2010 eased back 1 percent, but highway construction (the largest public works category) was still able to post a 3 percent gain for the year as a whole.

The electric utility category in 2010 bounced back 22 percent after its 36 percent downturn in 2009. The 2010 strength for electric utility construction came from large increases for alternative energy power plants (up 93 percent) and transmission line projects (up 66 percent), which more than offset a diminished amount of conventional power plant starts (down 43 percent).

The 2 percent decline for total construction starts at the national level in 2010 was the result of a mixed performance at the five region level. Lower activity for total construction was reported for the South Atlantic, down 11 percent; the South Central, down 3 percent; and the Midwest, down 1 percent. Greater activity for total construction was reported for the West, up 1 percent; and the Northeast, up 4 percent.