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Forecasts & Trends
July Construction Retreats 10 Percent
going over blueprints

New York, N.Y. – August 19, 2011 –The value of new construction starts dropped 10% in July to a seasonally adjusted annual rate of $394.7 billion, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies. The decline followed a 15% gain in June, and returned total construction to the lower end of its recent range. The nonbuilding construction sector, comprised of public works and electric utilities, fell back after a robust June that had been lifted by the start of several large transmission line and power plant projects. Nonresidential building also slipped back after its improved pace in June. On the plus side, residential building in July was able to show modest growth, helped by continued strengthening for multifamily housing. For the January-July period of 2011, total construction starts on an unadjusted basis came in at $235.0 billion, down 6% from the same period a year ago.

The July statistics produced a reading of 83 for the Dodge Index (2000=100), down from 92 in June. During the first seven months of 2011, the Dodge Index fluctuated within the range of 80 to 93. The average for the Dodge Index for all of 2010 was 90. “The construction start statistics continue to show an up-and-down pattern, as sporadic gains have yet to make the transition to more sustained expansion,” stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. “This behavior might be characterized as ‘bouncing along the bottom,’ following the sharp downturn for construction starts that took place in 2008 and 2009. Single family housing remains stalled at a low volume, not able to perform its more typical role of leading a construction upturn. The tight fiscal conditions at the federal, state, and local levels of government are restraining the public works and institutional building sectors, and the recent debt ceiling agreement points toward further restraint. While the commercial categories seem to have bottomed out, the concern about a weakening U.S. economy will likely delay any improvement for these project types in the near term.”

Nonbuilding construction in July fell 23% to $126.2 billion (annual rate). The electric utility category pulled back 69%, after its robust volume in June that saw contracting soar 103%. June had been boosted by the start of two large transmission line projects as well as thirteen large power plants, valued each at $100 million or greater. While July included the start of several large electric utility projects, they were fewer in number than what took place in June. There were four electric utility projects in July valued each at $100 million or greater, and they were the following – a $600 million natural gas-fired power plant in North Carolina, a $375 million transmission line in Utah, a $360 million wind farm in Utah, and a $242 million wind farm in Texas. The public works sector in July strengthened 20%, in a departure from what has been generally a downward trend during 2011. Highway construction in July jumped 27%, boosted by the start of the $575 million Capital Beltway project in northern Virginia. Bridge construction in July surged 47%, aided by the start of a $98 million bridge replacement project in Texas. The “miscellaneous” public works category, which includes mass transit, advanced 32% in July with support coming from the start of the $328 million Oakland Airport Connector project in California, and river/harbor development bounced back 29% after a subdued June. Two public works categories lost momentum in July – sewers, down 2%; and water supply systems, down 20%.

Nonresidential building, at $144.5 billion (annual rate), dropped 6% in July due partly to the commercial building sector retreating after its improved performance in June. The retail categories in July continued to languish, with stores down 9% and warehouses down 10%. Office construction in June had been aided by the start of several large projects, including a $200 million office campus in the Houston (TX) area, but with fewer large projects in July office construction descended 9%. The largest office project to reach groundbreaking in July was $110 million for the office portion of a $350 million pharmaceutical laboratory and office in Boston MA. Hotel construction in July was down 32% from the previous month. Running counter to the declines for commercial building in July was a substantial gain for the manufacturing building category, which jumped 190%. Large projects that lifted the July manufacturing amount were groundbreaking for a $1.5 billion semiconductor plant in Chandler AZ and the $225 million laboratory portion of the $350 million pharmaceutical laboratory and office in Boston MA.

The institutional side of the nonresidential market showed a mixed performance by project type. Healthcare facilities dropped 55% in July after elevated activity in the previous two months. Other July declines were reported for amusement-related projects, down 45%; and the public buildings category, down 21%. On the plus side, the educational building category climbed 12%, helped by a $300 million construction project at the Whitney Museum of American Art in New York NY. July also included the start of major high school construction projects, with the four largest located in Arlington VA ($88 million), Chicago IL ($87 million), Merced CA ($76 million), and Methuen MA ($75 million). Two of the smaller institutional categories posted strong percentage gains in July after a very weak June – transportation terminals, up 44%; and churches, up 48%; although the levels for both of these project types remain weak by recent historical standards.

Residential building in July grew 3% to $124.0 billion (annual rate). Like the previous month, the upward push in July for residential building came from multifamily housing, which climbed 19%. Large multifamily projects that supported the July gain included a $242 million apartment building in Long Island City NY and a total of thirteen multifamily projects (mostly apartment buildings), each with a construction start cost in the range of $25 million to $55 million. The single family side of the housing market slipped 1% in July, as it continues to remain on hold at a depressed amount. July’s single family total showed gains in the West (up 6%) and South Atlantic (up 1%) relative to June, but declines in the South Central (down 3%), the Midwest (down 5%), and the Northeast (down 6%). Murray noted, “To this point, the only housing recovery has been on the multifamily side of the market. Single family housing continues to be weighed down by foreclosures, falling home prices, and the hesitation shown by potential homebuyers amidst uncertain economic conditions.”

The 6% decline for total construction starts on an unadjusted basis during the first seven months of 2011 was the result of decreased activity across the three major sectors. Nonresidential building was down 9% year-to-date, due to this pattern by segment – commercial building, up 2%; manufacturing building, up 143%; and institutional building, down 20%. Residential building year-to-date dropped 8%, while nonbuilding construction slipped 2%. By geography, total construction starts during the first seven months of 2011 compared to last year showed a gain for one region, the West, up 10%. Year-to-date declines were reported for the other four regions – the South Central, down 9%; the South Atlantic, down 10%; and the Midwest and Northeast, each down 12%.

JULY 2011 CONSTRUCTION STARTS

Dodge Index of New Construction Starts

 

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

Seasonally Adjusted Annual Rates, In Millions of Dollars

July 2011 June 2011 % Change

Nonresidential Building

$144,524

$153,519

-6

Residential Building

123,976

120,375

+3

Nonbuilding Construction

 126,228

 163,375

-23

Total Construction

$394,728

$437,269

-10

 

The Dodge Index
(2000=100, Seasonally Adjusted)

July 2011….........................83
June 2011............................92

 

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

7 Mos. 2011 7 Mos. 2010 % Change

Nonresidential Building

$85,975

$94,504

-9

Residential Building

68,745

74,319

-8

Nonbuilding Construction

80,318

82,361

-2

Total Construction  

$235,038

$251,184

-6

About McGraw-Hill Construction
McGraw-Hill Construction connects people, projects, and products across the construction industry. For more than a century, it has remained North America’s leading provider of project and product information, plans and specifications, and industry news, trends and forecasts. McGraw-Hill Construction serves more than one million customers in the global construction industry through Dodge, Sweets, Architectural Record, Engineering News-Record, GreenSource, and SNAP. To learn more, visit www.construction.com or follow @mhconstruction on Twitter.

About The McGraw-Hill Companies:
Founded in 1888, The McGraw-Hill Companies is a leading global financial information and education company that helps professionals and students succeed in the knowledge economy. Leading brands include Standard and Poor’s, McGraw-Hill Education, Platts energy information services, and J.D. Power and Associates. The Corporation has approximately 21,000 employees with more than 280 offices in 40 countries. Sales in 2010 were $6.2 billion. Additional information is available at www.mcgraw-hill.com.

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