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June Construction Starts Retreat 15 Percent

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 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.

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, 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.

Decreased activity in June was also reported for public buildings (courthouses and detention facilities), down 26 percent; churches, down 30 percent; and transportation terminals, down 66 percent. The educational facilities category in June increased 10 percent, supported by the start of these projects – the $345 million Museum of the Bible in Washington, D.C. a $300 million research facility at Massachusetts Institute of Technology in Cambridge, Mass., and a $190 million science and health professions facility at Hunter College in New York.

There were also several large high school construction projects that reached groundbreaking in June, located in Maple Valley, Wash. ($110 million), Portland, Ore., ($97 million), and Winnetka, Ill. ($89 million).

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.