October Construction Advances 5 Percent

The value of new construction starts increased 5 percent in October to a seasonally adjusted annual rate of $585.6 billion, according to McGraw Hill Construction, a division of McGraw Hill Financial. The gain followed a 13 percent jump for total construction starts in September, and during both September and October much of the upward push came from groundbreaking for several very large projects.

By sector, nonresidential building surged in October aided by the start of three massive manufacturing plants, and residential building resumed its upward track after a September pause. Although nonbuilding construction in October settled back from its elevated September pace, the decline was cushioned by the start of structural work valued at $2.8 billion on the Tappan Zee Bridge replacement project in New York.

“The levels of activity in September and October reflected the impact of several large and unusual projects, so a slower pace can be expected going forward in the near term,” said Robert A. Murray, chief economist for McGraw Hill Construction. “At the same time, October’s data did include positive signs that the underlying upward trend for construction is likely to continue, even amidst the greater uncertainty caused by the 16-day government shutdown last month. For nonresidential building, more manufacturing-related projects are reaching groundbreaking, the commercial structure types are moving upward albeit unevenly, and the educational building category is providing more evidence that it’s stabilizing after a lengthy decline. Residential building in October showed its resilience with a modest gain after losing momentum in September. And, while public works is vulnerable to federal spending cutbacks, it continues to benefit as major projects that have been in the planning pipeline are now reaching the construction start stage.”

Nonresidential building in October climbed 20 percent to $216.9 billion (annual rate). Manufacturing plant construction soared 147 percent, led by the start of these three projects – a $1.7 billion fertilizer plant in Iowa, a $1.7 billion natural gas processing plant in West Virginia, and a $1.5 billion gasification plant in Louisiana that will produce industrial liquid and gas products from petroleum coke. New plant construction in Louisiana has been particularly strong through the first 10 months of 2013, up 265 percent compared to last year, with Louisiana ranked first among the 50 states in the dollar volume of manufacturing starts.

The commercial categories combined rose 3 percent in October, helped in particular by strong percentage growth for stores, up 29 percent; and warehouses, up 22 percent. The store category in October was supported by a $120 million expansion to an outlet mall at the Foxwoods casino complex in Ledyard, Conn., while warehouses benefitted from the start of a $50 million warehouse park in Edison, N.J.

Offices and hotels retreated in October, falling 8 percent and 15 percent, respectively. Despite its October decline, office construction did include the start of several noteworthy projects, such as a $150 million office building in San Francisco, a $115 million office tower in Boston and an $83 million corporate headquarters building in San Diego.

On the institutional side, the educational building category grew 4 percent in October, rising for the second month in a row and reaching its strongest volume so far in 2013. There were four large high school projects valued at $75 million or greater that reached groundbreaking in October, with two in Connecticut ($94 million and $75 million), one in Texas ($92 million) and one in Maryland ($86 million).

The healthcare facilities category in October dropped 20 percent after its sharp upturn in September, although October did include the start of several large hospital projects – a $550 million hospital in Chicago, a $230 million hospital in Reading, Pa., and a $130 million hospital in Bangor, Maine.

Like educational buildings, the dollar amount for healthcare facilities was down 1 percent through the first 10 months of 2013 from the prior year. The smaller institutional categories in October showed a mixed pattern, with declines for churches, down 26 percent; and public buildings, down 19 percent; but gains for amusement and recreational facilities, up 12 percent; and transportation terminals, up 30 percent.

The amusement category was helped by the $305 million expansion to the Henry B. Gonzalez Convention Center in San Antonio, while the transportation terminal category was supported by the start of the $136 million Hobby Airport International Concourse in Houston.

Residential building, at $209.5 billion (annual rate), increased 3 percent in October. Single-family housing grew 2 percent, rebounding after slipping 2 percent in September. The dollar amount for single family housing in October was up 12 percent from the start of the year, as this category returned to the gradual yet steady upward trend that’s been present for most of 2013.

By geography, single family housing in October was led by gains in the Northeast (up 8 percent) and the West (up 5 percent), while activity was basically flat in the South Atlantic and the South Central, and activity in the Midwest was down 2 percent. Multifamily housing in October climbed 6 percent, making a partial rebound after sliding 14 percent in September.

Large multifamily projects that contributed to the October gain were a $268 million condominium hotel in Honolulu, a $162 million apartment building in Boston and an $84 million apartment building in Mineola, N.Y.

Nonbuilding construction dropped 6 percent in October to $159.2 billion (annual rate). The decline was the result of a sharp downturn for electric utility construction, which fell 75 percent in October after experiencing a brief spike in activity during September.

There were two large electric utility projects that reached the start stage in October, a $750 million natural gas-fired power plant in Texas and a $200 million wind farm in Michigan, but these were smaller in scale than the large utility projects entered as September starts.

The public works categories combined were up 28 percent in October, due primarily to a 326 percent surge for bridge construction that reflected $2.8 billion for the start of structural work on the Tappan Zee Bridge replacement project across the Hudson River in the Tarrytown, N.Y., area. Earlier, site work totaling $300 million for this project had been reported, bringing the estimated construction start cost for the entire project to $3.1 billion.

October gains were also reported for sewer construction, up 45 percent with the help of a $263 million waste water treatment plant in Maryland, and highway construction, up 8 percent. Moving in the opposite direction, miscellaneous public works fell 4 percent in October, although it did include the $440 million Northgate Link Extension vehicle tunnel in Seattle. Steeper declines in October were reported for water supply systems, down 20 percent; and river/harbor development, down 50 percent.

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