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bob murray's monthly report

August Construction Retreats 3%

going over blueprintsNew York, N.Y. – September 17, 2008 – At a seasonally adjusted annual rate of $557.5 billion, new construction starts in August slipped 3% from the previous month, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies.  The nonbuilding construction sector (public works and electric utilities) fell back after July’s strong performance, while residential building continued its lengthy decline.  Running counter in August was improved activity for nonresidential building.  Through the first eight months of 2008, total construction on an unadjusted basis was $387.4 billion, down 15% from the same period a year ago.  If residential building is excluded, new construction starts in this year’s January-August period advanced 3%.

The August statistics produced a reading of 118 for the Dodge Index (2000=100), compared to 122 in July.  For the full year 2007, the Dodge Index averaged 134.  “Aside from further weakness for homebuilding, the construction start statistics this year have shown fluctuating activity for both nonbuilding construction and nonresidential building, and August was consistent with this pattern,” stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction.  “While month-to-month there have been wide swings, on a year-to-date basis the nonbuilding sector has been flat and nonresidential building is still seeing some growth.  In the latter case, the institutional and manufacturing categories have registered gains, outweighing to this point in 2008 mounting weakness for the commercial structure types.”

Nonbuilding construction in August dropped 20% to $141.5 billion (annual rate), following the 27% jump reported in July.  A 40% decline was reported for the often volatile electric utility and gas systems category, which had soared 156% in July due to the start of two massive power plants.  The August level for this category was still high by recent standards (about twice the average monthly pace in 2007), and August did include the start of a $2.4 billion coal gasification facility in Indiana.  The environmental public works categories slowed in August, with river/harbor development down 32%; sewers, down 15%; and water supply systems, down 11%.  These declines came after generally heightened contracting in July, and August still included the start of several large projects, such as a $188 million retrofit for a water filtration plant in California, a $123 million pier replacement in Washington state, and a $102 million water reclamation facility in Florida.  On the transportation side, bridge construction in August pulled back 31%, even with the start of the $146 million reconstruction of the Gowanus Expressway in Brooklyn NY, while highway construction slipped a modest 1%.  Murray added, “With the impending deficit in the Highway Trust Fund, highway and bridge construction was looking at a more difficult funding environment.  To deal with this situation, Congress in early September approved an $8 billion transfer from the general fund to the trust fund, easing some of the downside risk.”

Residential building, at $160.3 billion (annual rate), fell 12% in August.  Single family housing decreased an additional 3%, making it seven out of the first eight months of 2008 that weaker activity has been reported.  On a year-to-date basis, single family housing in dollar terms was down 38%, as the 2008 slide has turned out to be even more pronounced than what was experienced in 2007 (which dropped 26% for the full year).  By region, the largest shortfalls for single family housing in the January-August period of 2008 were in the West (down 47%), the South Atlantic (down 40%), and the Midwest (down 38%).  Smaller reductions were registered in the South Central (down 30%) and the Northeast (down 26%).  Multifamily housing in August fell a steep 37%, following the previous month which included the start of four projects valued each in excess of $100 million.  Even with a month like July that featured several very large projects, the number of such projects that are reaching groundbreaking this year is down considerably from 2007.  On a year-to-date basis, multifamily housing for the nation fell 40% in dollar terms, with substantial declines for each major region – the Midwest, down 61%; the West and South Atlantic, each down 42%; and the South Central and Northeast, each down 26%.

Nonresidential building in August climbed 17% to $255.7 billion (annual rate), reflecting the start of a $3.5 billion steel processing facility in Alabama and the start of the $800 million Concord Casino/Hotel and Convention Center in the Catskills region of New York (Kiamesha Lake).  If these two massive projects are excluded, nonresidential building in August would be down 6%.  The manufacturing building category in August registered a nine-fold increase from a depressed July, with much of the boost provided by the massive steel plant.  Other large manufacturing projects reported as August starts were a $160 million ethanol plant in Iowa and a $108 million food processing plant in Florida.  The amusement and recreational category in August jumped 41%, lifted by $275 million for the casino and convention center portion of the Concord project.  Hotel construction in August grew 12%, supported by $286 million for the hotel portion of the Concord project.  The educational building category in August increased 3%, featuring groundbreaking for eight large high schools valued each in excess of $50 million.  Gains in August were also reported for churches, up 8%; dormitories, up 9%; and transportation terminals, up 12%.

On the negative side, the commercial categories (excluding hotels) showed these August reductions – warehouses, down 12%; stores, down 14%; and offices, down 16%.  While the office category did include the start of a $200 million renovation and addition to a judicial building in Montgomery AL, it was not enough to avert a decline for the month.  On a year-to-date basis, the commercial categories showed this pattern – sharply lower activity for stores (down 25%) and warehouses (down 33%), a modest retreat for offices (down 3%), and more growth for hotels (up 34%) as the result of groundbreaking for a number of large hotel/casino projects this year.  Murray noted, “The credit crunch and weak economy in 2008 have had their most immediate impact on stores and warehouses, and some dampening is beginning to emerge for offices.  The current wave of financial market distress will lead to a more extended period of tight lending standards, further depressing the amount of commercial buildings expected to reach groundbreaking through 2009.”  Nonresidential building in August also included weaker activity for healthcare facilities, down 11%; and public buildings (courthouses and detention facilities), down 10%.

For the first eight months of 2008, the 15% drop for total construction compared to last year was the result of a 38% reduction for residential building.  Nonbuilding construction was unchanged from 2007, while nonresidential building advanced 5%.  Within the nonresidential building sector was a varied year-to-date performance – gains for institutional buildings, up 7%; and manufacturing buildings, up 66%; but a 10% drop for commercial buildings.  By geography, total construction in the January-August period of 2008 revealed weaker activity for the South Atlantic, down 27%; the West, down 25%; and the Midwest, down 11%.  The South Central was unchanged year-to-date, while the Northeast managed to edge up 1%.

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August 2008 Construction Starts


Prepared by McGraw-Hill Construction Research & Analytics 

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

  August 2008 July 2008 % Change
 Nonresidential Building $255,720 $217,869 +17
 Residential Building 160,259 182,680 -12
 Nonbuilding Construction 141,528 176,392 -20
 Total Construction $557,507 $576,941 -3

The Dodge Index
(2000=100, Seasonally Adjusted)

August 2008.......................................118
July 2008.............................................122

Unadjusted Totals, In Millions of Dollars

  8 Mos. 2008 8 Mos. 2007 % Change
 Nonresidential Building $169,153 $161,852 +5
 Residential Building 119,868 194,670 -38
 Nonbuilding Construction  98,337  98,603 -0-
 Total Construction $387,358 $455,125 -15




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