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Robert Murray's Monthly Report

New Construction Starts in December Retreat 5%;
Annual Total for 2008 Slides 15% to $543 Billion
going over blueprints

New York, N.Y. – January 21, 2009 – New construction starts in December dropped 5% to a seasonally adjusted annual rate of $427.4 billion, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies.  Despite slight improvement for nonresidential building, the housing sector showed further weakness in December, and decreased activity was also reported for nonbuilding construction (public works and electric utilities).  For the full year 2008, total construction starts were down 15% to $542.8 billion, marking the second straight year of reduced contracting after the 7% decline reported for 2007.  Excluding residential building, new construction starts for 2008 were up a modest 2%, a decelerating rate of growth for the non-housing project types following gains of 7% in 2007 and 21% in 2006.

The December statistics produced a reading of 90 for the Dodge Index (2000=100), compared to a revised 95 for November and the lowest monthly level reported during 2008.  “The pattern of construction starts revealed a downward trend over the course of 2008, as the extended slide for housing was joined by emerging weakness for commercial building and to a lesser extent public works,” stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction.  “At the same time, there were still several bright spots in 2008.  These included more growth for educational buildings and healthcare facilities, plus large gains for manufacturing plants and electric power plants.  For 2009, the depressed economy and troubled financial sector will lead to further declines for housing and commercial building, and a loss of momentum is also anticipated for the institutional and manufacturing structure types.  The eroding fiscal position of states and localities poses a constraint for public works, but this could be more than offset by the boost arising from the Obama Administration’s stimulus package, which is expected to be passed in mid-February.”

Nonresidential building in December grew 2% to $208.7 billion (annual rate).  Healthcare facilities finished 2008 on a strong note, climbing 21%.  This reflected the December start of several very large hospital projects, including two located in Chicago IL ($450 million and $440 million), plus three located in Everett WA ($340 million), Plainsboro NJ ($200 million), and Baton Rouge LA ($200 million).  The educational building category rose 4% in December, helped by groundbreaking for two large science buildings located in University Park PA ($170 million) and Austin TX ($122 million).  The smaller institutional categories retreated in December, with these declines – amusement-related work, down 8%; churches, down 10%; transportation terminals, down 27%; and public buildings, down 35%.  On the commercial side, store construction in December fell an additional 15%, but modest growth was posted by warehouses, up 1%; offices, up 5%; and hotels, up 6%.  After a strong November, manufacturing plant construction in December fell 34%.

For 2008 as a whole, nonresidential building edged up 1% to $237.7 billion.  Part of the upward impetus came from a 53% surge for manufacturing plant construction, which was lifted by the start of four massive oil refinery expansions totaling a combined $14.3 billion.  If these oil refinery expansions are excluded from the 2008 figures, manufacturing plant construction would be down 28% and nonresidential building overall would be down 5%.

The institutional side of nonresidential building grew 9% in 2008, due to expansion for several categories.  Healthcare facilities jumped 24%, reflecting a substantial number of large hospital projects.  The construction start statistics show that in 2008 there were 23 hospital projects valued each at $200 million or greater that reached groundbreaking.  The educational building category in 2008 advanced 7%, led by an 18% rise for new high schools.  The top two states for educational building in 2008, ranked by construction starts in dollar terms, showed these large gains – California, up 47%; and Texas, up 36%.  The public building category in 2008 also advanced 7%, aided by strength for military-related projects.  The other institutional categories experienced reduced contracting in 2008 – amusement-related work, down 2%; transportation terminals, down 5%; and churches, down 10%.

The commercial side of nonresidential building fell 17% in 2008, showing the impact of the weak economy and tight bank lending standards.  The most pronounced drop was registered by the retail categories – stores and shopping centers, down 27%; and warehouses, down 28%.  The decline for office construction was more moderate, down 7%, as 2008 included the start of three massive office towers each valued in excess of $1 billion located at the World Trade Center site in lower Manhattan.  Of the top five markets for office construction in 2008, ranked by the dollar volume of construction starts, one showed expansion (New York NY, up 128% ), but four showed declines (Washington DC, down 3%; Atlanta GA, down 38%; Miami FL, down 53%; and Chicago IL, down 56%).  Hotel construction in 2008 settled back 6% from a very strong 2007, as the number of large hotel/casino projects receded.  Murray indicated, “While the downturn for offices and hotels for full year 2008 was gradual, both structure types showed a sharp loss of momentum during last year’s fourth quarter that will carry over into 2009.”

Residential building in December dropped 11% to $111.4 billion (annual rate), the result of declines for both sides of the housing market – single family housing, down 9%; and multifamily housing, down 15%.  Single family housing retreated steadily as 2008 progressed, with reduced activity reported in eleven out of the twelve months.  “This suggests,” Murray indicated, “that the slide for single family housing still has further to go before reaching bottom.”  Multifamily housing during 2008 witnessed a sharp reduction in the number of very large projects that reached groundbreaking.  In December the three largest multifamily projects were moderate in scale and all apartments (as opposed to condominiums), located in Tampa FL ($60 million), Chicago IL ($53 million), and the Bronx NY ($50 million).

The 2008 annual total for residential building was $162.1 billion, down 39% from 2007.  Single family housing plunged 39% in dollar volume and 41% in dwelling units.  The regional pattern for single family housing showed the largest dollar volume decline in the West, down 47%, with an especially severe drop in Nevada, down 58%.  The next largest regional decline for single family housing was the South Atlantic, down 41%; followed by the Midwest, down 39%; the South Central, down 32%; and the Northeast, down 29%.  Multifamily housing for all of 2008 was down 37% in dollar volume and 33% in dwelling units.  The top five markets for multifamily housing in 2008, in dollar terms, showed a small 2% decline for New York NY, but larger declines for Washington DC, down 22%; Atlanta GA, down 35%; Los Angeles CA, down 36%; and Chicago IL, down 70%.

Nonbuilding construction in December retreated 10% to $107.2 billion (annual rate).  Electric utility construction plunged 42% from the prior month, even with the December start of a $305 million wind farm electric generation facility in Oregon.  The public works sector in December showed generally reduced activity, with bridges, down 1%; highways, down 8%; water supply systems, down 16%; and river/harbor development, down 44% from an elevated November.  Showing gains in December were sewer construction, up 2%; and miscellaneous public works (including site work), up 18%.

For the full year 2008, nonbuilding construction increased 4% to $143.1 billion.  A huge lift came from electric utility construction, which soared 55% as this category reached a record high in terms of the dollar amount of new construction starts.  The strength during 2008 covered a range of electric generation facilities, including coal-fired plants, gas-fired plants, wind farms, plus a $2.5 billion expansion to a nuclear facility in Tennessee.  The public works sector included a slight 1% gain for sewer construction, as well as a 15% increase for river/harbor development that was helped by continued reconstruction efforts in New Orleans LA.  At the same, the more difficult fiscal climate had its impact in 2008 on highways, down 1%; and bridges, down 7%.  Additional 2008 declines were reported for water supply systems, down 4%; and miscellaneous public works, down 12%.  Murray stated, “The most immediate boost to the public works sector coming from the proposed stimulus package would likely be highway and bridge construction, given the number of ‘shovel-ready’ projects set to go.”

The weaker construction activity at the national level during 2008 was also present at the five region level, to varying degrees.  The two regions with the sharpest declines for total construction during 2008 were the South Atlantic, down 26%; and the West, down 25%.  This was followed by the Midwest, down 12%; and the Northeast and South Central, each down a slight 1%.  Both the Northeast and South Central regions were cushioned by the start of several unusually large projects during 2008 – offices and hotel/casinos in the Northeast, and oil refinery expansions in the South Central.

 

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December 2008 Construction Starts

 

 

MONTHLY SUMMARY OF CONSTRUCTION STARTS
Prepared by McGraw-Hill Construction Research & Analytics

Monthly Construction Starts
Seasonally Adjusted Annual Rates, In Millions of Dollars

  December 2008 November 2008 % Change
 Nonresidential Building $208,731 $205,592 +2
 Residential Building 111,404 124,535 -11
 Nonbuilding Construction  107,218  119,714 -10
 Total Construction $427,353 $449,841 -5

 

The Dodge Index
(2000=100, Seasonally Adjusted)

December 2008 ............................................ 90
November 2008 ............................................ 95

YEAR-TO-DATE CONSTRUCTION STARTS
Unadjusted Totals, In Millions of Dollars

  12 Mos. 2008 12 Mos. 2007 % Change
 Nonresidential Building $237,655 $235,459 +1
 Residential Building 162,054 264,724 -39
 Nonbuilding Construction 143,125 138,001 +4
 Total Construction $542,834 $638,184 -15

 

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