May Construction Holds Steady

New York, N.Y. – June 19, 2008 – At a seasonally adjusted annual rate of $557.8 billion, new construction starts in May were essentially unchanged from April, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies. Nonresidential building in May registered a particularly strong performance, led by the start of several large manufacturing plants. At the same time, residential building continued to show a loss of momentum, and the nonbuilding construction sector (public works and electric utilities) retreated after April’s elevated activity. During the first five months of 2008, total construction on an unadjusted basis was reported at $228.3 billion, down 14% from the same period a year ago. If residential building is excluded from the year-to-date comparison, new construction starts in the first five months of 2008 increased 7%.

The May statistics produced a reading of 118 for the Dodge Index (2000=100), the same as April’s revised level, although 11% below the full year average for 2007 at 133. “The construction industry continues to reflect the extended decline for homebuilding, but on occasion other sectors this year have shown heightened activity,” stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. “In April, the construction start statistics were lifted by large public works and electric utility projects, and in May the boost has come from manufacturing plants plus gains for educational buildings, healthcare facilities, and hotels. The weaker economy is still expected to have some dampening impact on nonresidential building as 2008 proceeds, and the public works sector may soon reflect tighter federal and state budgets, but so far in 2008 this restraint has only begun to emerge.”

Nonresidential building in May advanced 26% to $264.7 billion (annual rate). The manufacturing building category soared 531%, due largely to the start of a massive $3.8 billion oil refinery expansion in Indiana. If this project is excluded, the manufacturing building category would be up 55% in May while the nonresidential total would be up 4%. Aside from the large oil refinery project, the manufacturing building category featured the start of other major projects in May, including a $350 million cement plant in Arkansas, a $155 million upgrade to a semiconductor plant in Massachusetts, and a $149 million synthetic fiber plant in South Carolina. Murray noted, “The high cost of energy has turned attention towards the need for greater refinery capacity in the U.S., and over the past year there’s been a pickup in refinery construction projects. Also, in a broader sense the weak U.S. dollar is encouraging manufacturers to go ahead with new plants and plant expansions within the U.S.”

On the institutional side of the nonresidential market, the educational building category increased 14% in May, aided by a $240 million medical research center in Cambridge MA and a $95 million high school in Monroe NJ. Healthcare facilities in May grew 8%, topping the strong volume that was reported in April. A number of large hospital projects reached groundbreaking in May, located in Chicago IL ($500 million), Beachwood OH ($235 million), Memphis TN ($195 million), Wheat Ridge CO ($175 million), and Cleveland OH ($145 million). Church construction in May advanced 21%, although its level of construction remains lackluster compared to mid-decade, and modest growth was reported for dormitories (up 5%), and public buildings (up 3%). The amusement category in May retreated 25% from April, which was boosted by a $400 million convention center expansion in Philadelphia PA. May did include the start of one large convention center project – the $275 million expansion to the Indiana Convention Center in Indianapolis IN. Transportation terminal work, sliding 17%, also retreated in May.

The commercial categories in May had a mixed performance. Hotel construction bounced back from a weak April, climbing 26%. Large hotel projects that reached groundbreaking included two hotel/casino additions, located in Las Vegas NV ($106 million) and Airway Heights WA ($77 million). Store construction in May increased 8%, marking a brief departure from its recent downward trend, as a $100 million shopping center renovation was started in Santa Monica CA. Modest gains in May were reported for garages (up 3%) and warehouses (up 2%). However, the office building category dropped 21% in May, despite the start of three large office projects in Washington DC valued at $82 million, $73 million, and $51 million, respectively.

Residential building, at $174.4 billion (annual rate), fell 5% in May. Single family housing continues to recede, slipping 2% in May, and since early 2006 the extended single family correction has shown weaker activity being reported in all but three months. By region, single family housing in May revealed this behavior – declines in the West (down 6%), the South Central (down 4%), the Northeast (down 2%), and the South Atlantic (down 1%); while the Midwest ran counter with a 4% gain. Multifamily housing in May descended 13%, resuming its retreat after a brief upturn in April. There were several large multifamily projects that reached groundbreaking in May, located in Atlanta GA ($110 million), Austin TX ($98 million), Philadelphia PA ($78 million), San Francisco CA ($78 million), and Portland OR ($77 million). However, the number of large multifamily project reaching the construction start stage is down considerably from last year.

Nonbuilding construction in May dropped 27% to $118.7 billion (annual rate), following the 29% surge that was reported for April. The electric utility category, which can be volatile on a month-to-month basis, plunged 84% from an April that included the start of a $2.9 billion coal-fired power plant in Illinois. May did include the start of two large wind power projects, located in Michigan ($100 million) and Pennsylvania ($60 million). On the public works side, water supply systems dropped 46%, also falling sharply from an April that was boosted by a huge project, in this case a $1.3 billion water treatment plant in New York. The water supply category in May did see two large water treatment plants reach the construction start stage, located in California ($207 million) and Texas ($168 million). May also saw moderate contracting declines for sewers (down 13%) and mass transit and site work (down 4%). On the plus side, river/harbor development work grew 17% in May, while gains were reported for both highways (up 13%) and bridges (up 18%). Large bridge projects that started in May were located in Connecticut ($124 million) and Texas ($108 million).

The 14% drop for total construction in the January-May period of 2008, compared to last year, reflected this pattern by sector – residential building, down 40%; nonbuilding construction, down 2%; and nonresidential building, up 13%. The nonresidential building sector is being lifted in 2008 by two massive refinery projects – the $3.8 billion refinery expansion in Indiana entered as a May start and a $7 billion refinery expansion in Texas entered as a January start. Excluding these two refinery projects, nonresidential building in the first five months of 2008 would show a modest 1% gain. By region, total construction in the first five months of 2008 revealed double-digit declines in three regions – the South Atlantic, down 27%; the West, down 23%; and the Midwest, down 12%. The South Central, down 1%, was essentially steady year-to-date; while the Northeast registered a 7% increase.

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MAY 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

The Dodge Index
(2000=100, Seasonally Adjusted)

May 2008........................................118
April 2008.......................................118

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