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Construction Spending Advances in August

At a seasonally adjusted annual rate of $433.9 billion, new construction starts in August climbed 8 percent compared to July, it was 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.

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. As 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 DC, 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.