August Construction Rises 2 Percent

By Mark S. Kuhar

Highway And Bridge Construction Had A Strong Month, Jumping 30 Percent.

At a seasonally adjusted annual rate of $490.2 billion, new construction starts in August advanced 2 percent relative to July, it was reported by McGraw Hill Construction, a division of McGraw Hill Financial. Residential building stayed on the upward track, and nonbuilding construction (public works and electric utilities) rebounded after its loss of momentum in July.

At the same time, nonresidential building retreated from its improved July amount, continuing the up-and-down pattern that’s been present during 2013. For the first eight months of 2013, total construction starts on an unadjusted basis came in at $329.4 billion, up 1 percent from the same period a year ago. If electric utilities are excluded from the year-to-date statistics, total construction starts in the first eight months of 2013 would be up 10 percent.

“On balance, the construction industry is showing modest growth in 2013, although by major sector there’s been divergent behavior,” stated Robert A. Murray, vice president of economic affairs for McGraw Hill Construction. “Housing continues to lead the way, with consistent gains reported for both single and multifamily housing. Public works has edged up slightly from last year, helped by the start of several very large projects and withstanding for now the negative impact of the sequester. New electric utility starts have fallen substantially from last year’s record volume. However, it’s been more problematic to discern this year’s trend for nonresidential building – the commercial categories are hesitantly picking up the pace, but the institutional categories are still languishing. A more solid expansion for total construction requires a greater contribution from nonresidential building, which has yet to occur.”

Residential Building
Residential building in August increased 4 percent to $214.1 billion (annual rate). Single-family housing grew 2 percent, maintaining the steady growth that’s been present during 2013. While the month-to-month increases have been smaller than last year, the consistent gains have enabled the pace for single family housing in August to be 11 percent higher than the start of this year, and 30 percent higher than the average monthly pace reported during 2012.

By geography, single family housing in August revealed this pattern – the Midwest, up 4 percent; the South Atlantic and Northeast, each up 3 percent; the West, up 2 percent; and the South Central, down 1 percent. Since May, the 30-year fixed mortgage rate has moved up from 3.5 percent to 4.5 percent, but this increase in the cost of financing has not had much if any negative impact on homebuyer demand and single family construction.

Multifamily housing in August jumped 12 percent, achieving the second highest monthly amount so far in 2013. Large multifamily projects that reached groundbreaking in August included a $110 million apartment building in Cambridge, Mass.; two apartment buildings in Brooklyn, N.Y., valued at $105 million and $103 million, respectively; and a $103 million apartment building in Boston. The top five metropolitan areas for multifamily starts in August were New York, Boston, Miami, San Francisco and Los Angeles.

Nonbuilding Construction
Nonbuilding construction, at $127.3 billion (annual rate), climbed 11 percent in August. Highway and bridge construction had a strong month, jumping 30 percent. Large projects that lifted the highway and bridge total in August were the $798 million Horseshoe Project in Dallas, involving replacement of bridges over the Trinity River and road upgrades, and the $743 million Bayonne Bridge project in Bayonne, N.J., involving raising the bridge roadway from 151 ft. above the water to approximately 215 ft. The top five states for new highway and bridge construction starts in August were Texas, New Jersey, New York, California and Illinois.

The miscellaneous public works category, which includes such project types as pipelines and mass transit, increased 6 percent in August. Large projects that supported the miscellaneous public works total were a $300 million shale pipeline in Texas and a $133 million rail tunnel for Amtrak under the Hudson Yards site in New York.

The remaining public works categories retreated in August from the previous month. River/harbor development slipped 5 percent, although August did include $148 million for site work in advance of the upcoming Tappan Zee Bridge replacement in New York. Water supply construction in August decreased 10 percent, while new sewer projects dropped 16 percent. Electric utility construction in August fell an additional 5 percent, continuing this year’s sharply lower amount of construction starts relative to 2012. The largest electric utility project in August was a $327 million wind farm in Texas.

Nonresidential Building
Nonresidential building in August dropped 8 percent to $148.9 billion (annual rate), falling back after a 9 percent gain in July. Much of the downturn came from the institutional categories, which fell a combined 16 percent.

Healthcare facilities pulled back 44 percent after showing improved activity in July, as construction is being restrained by several factors, including uncertainty related to the implementation of the Affordable Care Act and a greater number of hospital mergers. The largest hospital project that reached groundbreaking in August was a $118 million hospital in Shiloh, Ill., followed by a $66 million addition to a medical center in Plano, Texas.

Education-related construction in August dropped 5 percent, also after showing improved activity in July. There were several large high school construction projects that reached groundbreaking in August, including a $100 million high school in Haslet, Texas, and a $62 million high school in Guilford, Conn., but these were not enough to avert a decline for the overall category.

Most of the smaller institutional categories showed reduced contracting in August. Transportation terminal work dropped 50 percent from its heightened July amount, although August did include $157 million for a passenger rail station reconstruction in Harrison, N.J.
The public buildings category in August retreated 35 percent, while church construction stayed depressed with a 14 percent decline. Amusement and recreational work ran counter to the generally downward movement for institutional building in August, climbing 57 percent.

Large projects that helped to lift the amusement total were the $126 million Harrah’s Resort Meeting Facility in Atlantic City, N.J.; a $101 million addition to the Hard Rock Casino and Hotel in Sioux City, Iowa; and a $100 million renovation to the Inglewood Forum in Inglewood, Calif.

The commercial categories in August grew a combined 3 percent. Office construction increased 10 percent, lifted by the August start of several large projects – the $500 million Facebook data center in Altoona, Iowa; a $100 million addition/renovation to an office building in Rockville, Md.; and a $91 million biomedical office building in New Haven, Conn.

Hotel construction in August climbed 23 percent, rebounding from a weak July with the boost coming from groundbreaking for a $95 million hotel resort in Hollywood, Fla. Warehouse construction in August advanced 3 percent, but store construction fell back 9 percent, despite the start of an $85 million regional shopping center in northern Virginia. The manufacturing plant category in August grew 21 percent after a weak July, helped by the start of a $138 million chemical plant in Louisiana and a $130 million ethanol plant in North Dakota.

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