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August Construction Climbs 8 percent

At a seasonally adjusted annual rate of $424.7 billion, new construction starts in August advanced 8 percent, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies. The gain followed a 10 percent decline in July, and continued the fluctuating pattern that’s been present in recent months. The pickup for total construction in August was the result of greater activity for each of construction’s three main sectors – nonresidential building, residential building, and nonbuilding construction. For the first eight months of 2011, total construction on an unadjusted basis was reported at $274.8 billion, down 6 percent from the same period a year ago.

The August statistics lifted the Dodge Index to 90 (2000=100), up from July’s 83. “During the first five months of this year, total construction had trended downward, but over the next three months an up-and-down pattern has emerged,” stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. “This suggests that construction starts are beginning to stabilize after the earlier loss of momentum. At the same time, total construction remains on track to register a moderate decline for 2011 as a whole, after leveling off in 2010. While August showed some improvement for institutional building and public works, each of these sectors will be subject to funding cutbacks at the federal and state levels of government. Single-family housing continues to see homebuyer demand restrained by the sluggish economic environment and more restrictive lending standards. And, what appears to be the early signs of recovery for commercial building may well end up being deferred by rising investor concern about employment growth and the near term prospects for the U.S. economy.”

Nonbuilding construction in August climbed 13 percent to $143.0 billion, making a partial rebound after plunging 23 percent in July. The dams and river/harbor development category surged 283 percent, reflecting the boost coming from $1.5 billion for work on the Olmsted Dam in Kentucky, as well as $260 million for the Calaveras Dam replacement project in California. Sewer and waste disposal construction was also strong in August, advancing 64 percent, with support coming from the start of a $463 million chemical weapons storage and disposal facility in Colorado. Other types of public works retreated in August, including a 21 percent drop for highways and bridges.

Murray noted, “Of the various project types, highway and bridge construction received the most support from federal stimulus funds over the past two years, but that support has diminished substantially during 2011.” August declines were also reported for “miscellaneous” public works (e.g., site work, rail lines, pipelines), down 8 percent; and water supply systems, down 14 percent. For the electric utility category, contracting continued to be strong with a 16 percent gain in August. Large electric utility projects that reached the construction start stage were led by two located in California – a $750 million solar power facility and a $500 million natural gas fired power plant.

Nonresidential building in August grew 7 percent to $153.6 billion (annual rate). The institutional side of the nonresidential market showed a strong gain for healthcare facilities, which jumped 107 percent. Lifting the healthcare total in August was the start of a $385 million U.S. Army medical center at Fort Hood, Texas. Additional support came from the start of two large hospital projects in California, valued at $270 million and $164 million, respectively, and a $220 million hospital project in Maine. The public building category climbed 55 percent in August from its low July amount, reflecting the start of a $115 million courthouse building in Philadelphia. The amusement-related category in August increased 18 percent, helped by the start of a $45 million sports arena in Bangor, Maine, and a $45 million convention center in Cedar Rapids, Iowa. Heading downward in August was the educational building category, which fell 7 percent despite groundbreaking for a $95 million high school in Maryland and an $86 million biomedical research facility in Minnesota. Also retreating in August were churches, down 11 percent; and transportation terminals, down 8 percent.

The commercial side of the nonresidential market showed a mixed pattern by project type. Hotel construction surged 125 percent from a weak July, helped by the start of a $154 million convention center hotel in Nashville. Warehouse construction grew 30 percent, with the push coming from the start of a $150 million distribution center in Martinsburg, W.Va., while store construction advanced 18 percent. Moving in the opposite direction was office construction, which fell 18 percent in August. A steeper decline was reported for the manufacturing building category, which retreated 62 percent from July despite the start of a $1.5 billion semiconductor plant in Arizona.

Residential building, at $128.0 billion (annual rate), increased 4 percent in August. Most of the upward movement came from multifamily housing, which rose 15 percent in August, continuing the trend that has been present for much of 2011. Large multifamily projects that reached groundbreaking in August included the $362 million Gotham West apartment complex in New York, a $137 million apartment complex in Marina Del Ray, Calif., and a $90 million apartment building in Boston. Through the first eight months of 2011, the top five metropolitan areas in terms of the dollar amount of multifamily projects were – New York, Washington, D.C., Boston, Chicago, and Los Angeles. Single family housing in August managed to edge up 1 percent, as the pattern of recent months suggests that activity is stabilizing at a low volume after the declines witnessed earlier in 2011. The pace for single family housing in August, in dollar terms, was still 2 percent below the average monthly pace that was shown during 2010.

The 6 percent shortfall for total construction on an unadjusted basis during the January-August period of 2011 reflected a mixed performance by sector. Nonresidential building fell 8 percent year-to-date, as a 17 percent drop for institutional building outweighed a 4 percent gain for commercial building and a 72 percent gain for manufacturing building. Residential building decreased 5 percent year-to-date, with single family housing down 7 percent while multifamily housing advanced 8 percent. Nonbuilding construction year-to-date slipped 4 percent, as public works retreated 23 percent while electric utilities soared 129 percent. By region, total construction starts showed the following year-to-date performance – the Midwest and Northeast, each down 13 percent; the South Atlantic, down 6 percent; the South Central, down 4 percent; and the West, up 4 percent.