October Construction Advances 5 Percent
New York, N.Y. – November 20, 2013 – The value of new construction starts increased 5% 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% 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. During the first ten months of 2013, total construction starts on an unadjusted basis came in at $433.0 billion, up 4% from the same period a year ago. If the electric utility category is excluded from the year-to-date statistics, total construction starts for the first ten months of 2013 would be up 13%.
The October data lifted the Dodge Index to 124 (2000=100), compared to 118 in September and the highest reading for the Index so far in 2013. During the first eight months of 2013, the Index had stayed within the fairly narrow range of 99 to 107, but the most recent two months have seen the Index climb substantially. “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% to $216.9 billion (annual rate). Manufacturing plant construction soared 147%, 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 ten months of 2013, up 265% compared to last year, with Louisiana ranked first among the fifty states in the dollar volume of manufacturing starts. The commercial categories combined rose 3% in October, helped in particular by strong percentage growth for stores, up 29%; and warehouses, up 22%. The store category in October was supported by a $120 million expansion to an outlet mall at the Foxwoods casino complex in Ledyard CT, while warehouses benefitted from the start of a $50 million warehouse park in Edison NJ. Offices and hotels retreated in October, falling 8% and 15% 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 CA, a $115 million office tower in Boston MA, and an $83 million corporate headquarters building in San Diego CA.
On the institutional side, the educational building category grew 4% 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). Through the first ten months of 2013, the dollar amount for the educational building category was still down 1% from the prior year, but the shortfall has been narrowing as 2013 has progressed. The healthcare facilities category in October dropped 20% after its sharp upturn in September, although October did include the start of several large hospital projects – a $550 million hospital in Chicago IL, a $230 million hospital in Reading PA, and a $130 million hospital in Bangor ME. Like educational buildings, the dollar amount for healthcare facilities was down 1% through the first ten months of 2013 from the prior year. The smaller institutional categories in October showed a mixed pattern, with declines for churches, down 26%; and public buildings, down 19%; but gains for amusement and recreational facilities, up 12%; and transportation terminals, up 30%. The amusement category was helped by the $305 million expansion to the Henry B. Gonzalez Convention Center in San Antonio TX while the transportation terminal category was supported by the start of the $136 million Hobby Airport International Concourse in Houston TX.
Residential building, at $209.5 billion (annual rate), increased 3% in October. Single family housing grew 2%, rebounding after slipping 2% in September. The dollar amount for single family housing in October was up 12% 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%) and the West (up 5%), while activity was basically flat in the South Atlantic and the South Central, and activity in the Midwest was down 2%. Multifamily housing in October climbed 6%, making a partial rebound after sliding 14% in September. Large multifamily projects that contributed to the October gain were a $268 million condominium hotel in Honolulu HI, a $162 million apartment building in Boston MA, and an $84 million apartment building in Mineola NY. During the first ten months of 2013, the leading metropolitan areas for multifamily construction starts (ranked by dollar volume) were the following – New York NY, Boston MA, Washington DC, Miami FL, and Los Angeles CA.
Nonbuilding construction dropped 6% in October to $159.2 billion (annual rate). The decline was the result of a sharp downturn for electric utility construction, which fell 75% 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% in October, due primarily to a 326% 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 NY 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% with the help of a $263 million waste water treatment plant in Maryland, and highway construction, up 8%. Moving in the opposite direction, miscellaneous public works fell 4% in October, although it did include the $440 million Northgate Line Extension vehicle tunnel in Seattle WA. Steeper declines in October were reported for water supply systems, down 20%; and river/harbor development, down 50%.
The 4% gain for total construction starts on an unadjusted basis during the first ten months of 2013 was due to varied behavior by the three main construction sectors. Nonresidential building year-to-date rose 6%, as the result of this pattern by segment – commercial building, up 11%; manufacturing building, up 50%; and institutional building, down 3%. Residential building year-to-date climbed 26%, with single family housing up 28% and multifamily housing up 18%. Nonbuilding construction year-to-date dropped 17%, with a steep 62% plunge for electric utilities more than offsetting a 5% gain for public works.
By region, total construction starts in the first ten months of 2013 showed increases in three of the five major regions – the Northeast, up 19%; the Midwest, up 10%; and the West, up 6%. Total construction declines were reported in the South Central, down 1%; and the South Atlantic, down 5%. The South Atlantic slide reflected the comparison to the first ten months of 2012 that included the start of two massive nuclear facilities. If electric utilities are removed from the year-to-date construction statistics in the South Atlantic, then total construction for that region in 2013 would be up 20%.
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