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October Construction Jumps 12 Percent

The value of new construction starts advanced 12 percent in October to a seasonally adjusted annual rate of $469.8 billion, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies. Much of the upward push came from nonresidential building, which was lifted by the start of a massive manufacturing project as well as by broader strengthening across several structure types. Also contributing to the total construction gain in October was a slight increase for the housing sector. Meanwhile, nonbuilding construction in October stayed even with its elevated September amount, helped by the start of several large electric power plants.

Highway and bridge construction in October pulled back 28 percent.

Through the first 10 months of 2011, total construction on an unadjusted basis came in at $355.6 billion, down 3 percent from the same period a year ago. The October data produced a reading of 99 for the Dodge Index (2000=100), up from September’s 89, and the highest level so far this year.

“After registering an up-and-down pattern during the first seven months of 2011, the construction start statistics from August through October have, on balance, shown improvement,” stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. “Much of this has been related to the start of very large projects, such as October’s huge manufacturing facility and several electric power plants. However, more sustained expansion for construction starts will require a supportive economic environment, which has yet to emerge. Job growth remains meager, and bank lending has picked up only slightly. Furthermore, tight fiscal conditions at all levels of government mean decreased funding for a wide range of publicly financed projects, and this will carry over into 2012.”

Nonbuilding Construction

Nonbuilding construction in October was reported at $160.2 billion (annual rate), the same amount as September. The electric utility category continued to see robust activity, rising 35 percent in October. Large electric utility projects that reached the construction start stage included $1.5 billion for work at Units 3 and 4 of the Vogtle nuclear power plant facility in Waynesboro, Ga., a $1.2 billion solar power plant in California, a $900 million solar power plant in Nevada, a $454 million hydroelectric facility in Kentucky, a $195 million wind farm in Kansas, and a $165 million wind farm in Illinois.

Murray indicated, “The electric power category is on track this year to post a new current dollar high for construction starts, helped in particular by further gains for solar and wind projects. However, with the expiration of federal incentives for alternative energy projects, next year is likely to see a slower pace for electric utility starts.”

The public works sector in October was mixed. The sewer and waste disposal category climbed 53 percent, helped by the start of a $380 million weapons destruction plant in Kentucky and a $331 million sewer tunnel in Washington D.C. Water supply construction in October increased 8 percent, while river/harbor development edged up 1 percent.

Moving in the opposite direction, highway and bridge construction in October pulled back 28 percent from a strong September, resuming the downward trend for these project types. The miscellaneous public works category, which includes mass transit and site work, dropped 11 percent in October, although it did include $302 million for work related to the Second Avenue Subway project in New York. The 3 percent shortfall for total construction on an unadjusted basis during the January-October period of 2011 was due to weaker activity across the three major sectors.

Nonresidential Building

Nonresidential building in October climbed 36 percent to $180.0 billion (annual rate). The manufacturing plant category soared 740 percent, boosted by $3.0 billion for work on the Adam’s Fork Energy Project in Wharncliffe, W.Va. This facility, when completed, will convert regional coal into gasoline. If the Adam’s Fork Energy Project is excluded from the October statistics, manufacturing plant construction would still advance, but at a modest 2 percent clip, while nonresidential building would be up 9 percent and total construction would be up 4 percent. Office construction in October also posted a large percentage gain, climbing 58 percent. Support for the office category came from the start of a $285 million office building in New York, which reached groundbreaking after being put on hold for the past couple of years.

Other large office projects that supported October’s office volume included a $200 million Facebook data center in Prineville, Ore., a $77 million operations center for the electric utility district in the Sacramento, Calif., area, and a $63 million military office building at Hickam Air Force Base in Hawaii. Warehouse construction in October increased 34 percent, helped by the start of an $80 million distribution center in Rome, Ga., while hotel construction grew 4 percent, with the lift coming from a $125 million renovation to a convention center hotel in King of Prussia, Pa. Store construction in October continued to languish, sliding 15 percent.

On the institutional side of the nonresidential market, the amusement-related category jumped 98 percent, aided by the $235 million renovation of the Cobo Convention Center in Detroit and groundbreaking for a $180 million sports arena in Lincoln, Neb. Gains were also posted by the public buildings category (courthouses and detention facilities), up 39 percent; and churches, up 8 percent.

The largest institutional category, educational buildings, slipped 3 percent in October, although several large high schools did reach groundbreaking in such states as Delaware ($115 million), Connecticut ($81 million), Utah ($62 million), and Texas ($51 million). Healthcare facilities in October retreated 8 percent, despite the start of a $275 million hospital at Fort Benning, Ga., and a $132 million hospital addition in Danbury, Conn. The transportation terminal category in October dropped 35 percent, following its heightened volume in September.

Residential Building

Residential building, at $129.7 billion (annual rate), grew 2 percent in October. Multifamily housing continues to be one of the brighter categories for construction in 2011, as it climbed 5 percent in October. Large multifamily projects that reached groundbreaking in October included a $95 million apartment building in Boston and an $86 million townhome complex in Maryland. Through the first 10 months of 2011, the top five metropolitan areas in terms of the dollar volume of multifamily starts were the following – New York , Washington D.C., Boston, Dallas-Ft. Worth, and Chicago.

Single family housing in October edged up 1 percent, and has seen very gradual upward movement after retreating during the first four months of this year. During the January-October period of 2011, the regional pattern for single family housing showed this performance – the South Atlantic, no change; the South Central, down 3 percent; the West, down 4 percent; the Midwest, down 7 percent; and the Northeast, down 13 percent.

  • Nonresidential building fell 6 percent year-to-date, as a 15 percent decline for institutional building outweighed a 5 percent gain for commercial building and a 52 percent increase for manufacturing building.
  • Residential building was down 1 percent year-to-date, with single family housing retreating 4 percent while multifamily housing grew 13 percent.
  • Nonbuilding construction was also down 1 percent year-to-date, the result of a 17 percent slide for public works combined with an 87 percent jump for electric utilities.

By geography, total construction starts during the first 10 months of 2011 relative to last year performed as follows – the West, up 8 percent; the South Atlantic, up 5 percent; the South Central, down 5 percent; the Northeast and Midwest, each down 12 percent.