July Construction Recedes 2 Percent
- Published: Monday, 26 August 2013 16:45
New construction starts in July decreased 2 percent to a seasonally adjusted annual rate of $479.1 billion, according to McGraw Hill Construction, a division of McGraw Hill Financial. The nonbuilding construction sector, comprised of public works and electric utilities, pulled back in July after being lifted in June by several very large projects. At the same time, nonresidential building strengthened in July, regaining some of the upward momentum that began to take hold in April and May, while residential building in July showed further growth.
Highway construction pulled back from an elevated June, sliding 22 percent.
For the first seven months of 2013, total construction starts on an unadjusted basis were reported at $281.7 billion, up 1 percent from the same period a year ago. The year-to-date amount for total construction was restrained by a steep decline for new electric utility starts. If electric utilities are excluded, total construction starts for this year’s January-July period would be up 11 percent, reflecting a substantial increase for housing as well as moderate improvement for commercial building.
“July’s modest decline for total construction was the result of diminished activity for public works, which can be volatile on a month-to-month basis depending on the timing of very large projects,” stated Robert A. Murray, vice president of economic affairs for McGraw Hill Construction. “Aside from the public works shortfall, the July statistics provided evidence that the hesitant expansion for construction is proceeding. Housing continues to show upward movement, and the pace of commercial building continues to pick up gradually from very low levels. The institutional building portion of nonresidential building, which generally weakened during the first half of 2013, strengthened in July, suggesting that it may now be starting to stabilize after a lengthy decline that’s lasted for more than four years. While the recovery for construction may be broadening in scope, the process continues to be tenuous given the ongoing sluggish condition of the U.S. economy.”
Nonresidential building in July advanced 8 percent to $161.3 billion (annual rate). At the outset of 2013, nonresidential building lost momentum, and then showed moderate growth in April and May before slipping back again in June. The institutional building sector in July jumped 19 percent, as several categories reported sizeable gains.
Healthcare facilities in July climbed 25 percent, boosted by groundbreaking for such large projects as a $450 million hospital tower in Stamford, Conn.; a $340 million medical center in Fargo, N.D.; a $130 million hospital tower in Springfield, Mo.; and a $120 million hospital tower in Washington, D.C.
This stands in contrast to the generally fewer large-scale hospital projects that were being reported as construction starts during the first half of 2013, when compared to what took place in 2012. The transportation terminal category in July surged 111 percent, helped by the start of the $650 million Central Subway Station in San Francisco and $105 million for work at Terminal 3 at San Francisco International Airport.
The public buildings category, which has recently been very weak, jumped 46 percent in July with the start of a $137 million renovation project at the Minnesota State Capitol Building in St. Paul, Minn. Educational facilities, the largest institutional category, also contributed in July with a 3 percent increase, rising for the second month in a row after weak activity in early 2013.
Large educational facility projects that were included as July starts included $218 million for phase 3 of the University of Maryland Health Sciences Research Facility in Baltimore, a $92 million high school in Concord, Mass., and an $85 million high school addition in Bellevue, Wash.
Institutional categories that weakened in July were churches, down 3 percent; and amusement-related construction, down 7 percent. The commercial categories in July slipped 2 percent, due to varied behavior by project type.
Office construction in July dropped 15 percent, although this followed a substantial 44 percent increase in June, and the level of activity in July was 21 percent higher than the average monthly pace for this category during 2012.
Large office projects that were included as July starts included $550 million for the office portion of the State Farm Headquarters complex in Richardson, Texas, plus two office buildings for Amazon in Seattle valued, respectively, at $133 million and $111 million.
Hotel construction in July fell 30 percent, registering comparatively weak activity after the elevated pace earlier in 2013. Store construction in July edged up 2 percent, helped by the start of a $70 million IKEA store in Merriam, Kan., while warehouse construction climbed 36 percent.
The manufacturing plant category in July posted a further decline, falling 31 percent as the slower activity witnessed so far in 2013 continued. The largest manufacturing plant project reported as a July start was a $63 million ethanol refinery in Florida.
Residential building, at $204.1 billion (annual rate), grew 3 percent in July. Multifamily housing rebounded 20 percent after sliding 21 percent in June, regaining the heightened activity that was present earlier in 2013. Large multifamily projects that reached groundbreaking in July included a $390 million condominium complex in New York, a $153 million mixed-use development in Boston, and a $117 million apartment complex in San Diego.
Single-family housing in July slipped 1 percent, and over the past several months has essentially leveled off after the strong month-to-month gains that were reported throughout 2012 and early 2013. July’s volume of activity was still high by last year’s standards – up 26 percent from the average monthly pace for single-family housing reported during 2012.
By region, single family housing in July showed greater activity in the Midwest, up 4 percent; but declines in the Northeast, South Central and West, each down 2 percent; and the South Atlantic, down 4 percent.
Murray noted, “The rise in mortgage rates in late spring generated some concern about the prospects for single-family housing, but mortgage rates have since eased back and the inventory of new homes for sale remains very low, which should encourage greater single family construction in the months ahead.”
Nonbuilding construction in July dropped 18 percent to $113.8 billion (annual rate). The public works portion of nonbuilding construction fell 20 percent, retreating after its 40 percent surge in June.
Bridge construction in July was down 54 percent, following the robust amount of construction starts in June that included $1.6 billion for work on the Ohio River Bridges in the Louisville, Ky., and the southern Indiana area, plus several other large bridge projects located in Massachusetts, Texas and New York.
Highway construction in July also pulled back from an elevated June, sliding 22 percent. Even with the reduced activity reported during July, highway and bridge construction through the first seven months of 2013 still maintained a 12 percent lead over the same period a year ago.
Sewer construction also registered weaker activity in July, falling 13 percent. Public works categories that showed greater activity in July were dams and river/harbor development, up 2 percent; miscellaneous public works (site work, pipelines, rail projects), up 3 percent; and water supply systems, up 32 percent.
The electric utility and gas plant category in July managed to increase 11 percent from very weak activity in June, helped by the start of a $270 million gas plant in Colorado and a $200 million solar power plant in New Mexico.
The amount of electric utility and gas plant construction continues to be much lower than last year, with July’s volume down 82 percent from the average monthly pace for this category during 2012.