January Construction Retreats 12 Percent
NEW YORK – February 21, 2013 – The value of new construction starts dropped 12% in January to a seasonally adjusted annual rate of $469.1 billion, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies. The decline followed a sharp 23% increase for total construction in December, and brought the level of contracting back to the average pace that was reported during 2012. Much of January's downturn was due to decreased activity for nonresidential building and housing, while the nonbuilding construction sector (public works and electric utilities) held close to its December volume. On an unadjusted basis, total construction starts in January were reported at $33.1 billion, up 11% from the same month a year ago.
The January statistics lowered the Dodge Index to 99 (2000=100), down from December's 112, and the same as the reading of 99 for the full year 2012. "The pullback for construction starts in January was not surprising, given the up-and-down pattern that was present for much of 2012," stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. "The large increase in December followed two months of lackluster activity in October and November, and it's likely that December benefitted from the start of projects that were earlier put on hold given the uncertain economic and political environment. Some of the uncertainty was eased by the January 1 agreement between the Obama Administration and Congress, which averted the fiscal cliff for the time being, as well as by the move by Congress to push back the debt ceiling deadline to May. However, the automatic spending cuts as part of the sequestration process are scheduled to begin on March 1, and their implementation is likely to restrain the fragile economic expansion. The upward trend for housing is still expected to continue during 2013, along with modest improvement for commercial building, but this year's prospects for institutional building and public works remain in doubt."
Nonresidential building in January fell 20% to $150.6 billion (annual rate), retreating after the 33% jump that was reported in December. On the institutional side, the educational building category in January dropped 9%, following a brief upturn in December. Three large medical research facilities reached groundbreaking in January, located in Farmington CT ($191 million), La Jolla CA ($160 million), and Atlanta GA ($85 million), but these were not enough to offset weaker activity for other education-related projects. Healthcare facilities in January plunged 35%, down from December which had been boosted by several large hospital projects, including a $615 million hospital expansion in Palo Alto CA. In contrast, the largest healthcare project included as a January start was a $52 million dental health facility in San Antonio TX. Most of the smaller institutional categories showed weaker activity in January, including declines for transportation terminals, down 54%; public buildings, down 39%; and churches, down 35%. The one institutional category able to report a January gain was amusement-related work, which rose 13% relative to December with the help of a $50 million lottery and racetrack facility in Lebanon OH.
On the commercial side, office construction in January retreated 27% from December, which had been lifted by the start of an $850 million high-rise at the Hudson Yards development in New York NY. While not as massive as what took place in December, there were several large office projects that reached groundbreaking in January, including a $150 million data center in Richmond VA, a $90 million corporate center in Hoboken NJ, and a $52 million corporate headquarters renovation in San Francisco CA. Store construction in January decreased 19%, although January did include the start of a $105 million enclosed mall in the Bronx NY. Hotel construction ran counter to the generally downward trend, jumping 97% in January. The substantial increase for the hotel category came from a $400 million resort hotel in Orlando FL, plus three large hotel renovation projects in New York NY, valued respectively at $85 million, $70 million, and $58 million. Warehouse construction also strengthened in January, rising 11%. The manufacturing plant category in January dropped 39% from its heightened December amount, although January did include the start of a $550 million methanol plant in Louisiana and a $235 million cellulosic ethanol plant in Iowa.
Residential building, at $172.7 billion (annual rate), dropped 11% in January. Much of the decline reflected a steep 30% retreat for multifamily housing, following elevated contracting for this category in December as the result of three projects valued each in excess of $200 million. In January, the three largest multifamily projects were an $84 million apartment complex in Cambridge MA, a $74 million apartment tower in Brooklyn NY, and a $71 million apartment complex in Secaucus NJ. The January pace for multifamily housing was down 13% from its average monthly rate during 2012. Single family housing in January slipped 5%, pausing after the steady improvement that was shown over the course of 2012. The January pace for single family housing was still up 11% from its average monthly rate during 2012, and up 33% on a raw (not seasonally adjusted) basis from the same month a year ago. By major region, single family housing showed this pattern for January relative to December – the West, up 4%; the Northeast, down 2%; the South Central, down 7%; the Midwest, down 8%; and the South Atlantic, down 11%. Murray indicated, "Multifamily housing can be volatile on a month-to-month basis, and single family housing is considerably stronger than the same time a year ago. On balance, the housing recovery should be able to continue during 2013, even with a lackluster performance by the overall economy."
Nonbuilding construction in January receded 1% to $145.8 billion (annual rate). The electric utility category in January fell 45% after its sharp rebound in December. Although January did not receive the same boost from large projects that took place in December, there were several noteworthy electric utility projects included as January starts – a $1.2 billion upgrade to a coal-fired generating station in Kentucky, a $247 million power line project in Oklahoma, and a $230 million solar power facility in California. The public works portion of nonbuilding construction showed generally stronger activity in January. Highway and bridge construction climbed 14%, lifted in particular by a $1.4 billion tunnel project in Norfolk VA and the $235 million upper deck replacement of the Verrazano-Narrows Bridge in New York NY. Murray noted, "Highway and bridge construction during 2013 may be able to withstand much of the downward pull from fiscal restraint, since several very large projects are on track to reach groundbreaking this year. In addition, the Highway Trust Fund still receives much of its support from gasoline tax revenues, as opposed to the general fund, which makes it less vulnerable to the automatic spending cuts scheduled to take place as part of the sequestration process." The miscellaneous public work category (which includes site work, rail projects, and pipelines), also had a strong January, rising 53% with the help of a $240 million railroad hub project in New Mexico. Other January gains were shown by river/harbor development, up 17%; and sewers, up 10%, while water supply construction dropped 9%.
The 11% increase for total construction starts on an unadjusted basis, for January 2013 relative to January 2012, was due to this performance by major sector – nonresidential building, down 1%; residential building, up 27%; and nonbuilding construction, up 8%. By region, total construction for January 2013 relative to January 2012 revealed increased activity in the South Atlantic, up 36%; the Northeast, up 30%; and the South Central, up 24%. Decreased activity in January on a year-over-year basis was reported for the Midwest, down 4%; and the West, down 16%.
Additional perspective can be obtained by looking at twelve-month moving totals, in this case the twelve months ending January 2013 versus the twelve months ending January 2012, which lessens the volatility present in one-month comparisons. For the twelve months ending January 2013, total construction starts
were up 8%, due to this pattern by sector – nonresidential building, down 8%; residential building, up 30%; and nonbuilding construction, up 6%. By region, the twelve months ending January 2013 showed the following behavior for total construction compared to the prior twelve months – the South Atlantic, up 22%; the South Central, up 12%, the Northeast and Midwest, each up 8%; and the West, down 7%.
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