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March Construction Stays Even With Prior Month

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New construction starts in March came in at a seasonally adjusted annual rate of $404.9 billion, essentially the same pace as February, according to McGraw-Hill Construction, a division of The McGraw-Hill Cos. While total construction was unchanged from the prior month, this steady pattern came as the result of divergent behavior by constructionís three main sectors. Nonresidential building in March increased sharply, following its subdued activity earlier this year, but declines were registered by housing and nonbuilding construction (public works and electric utilities). Through the first three months of 2011, total construction on an unadjusted basis was reported at $88 billion, down 10% from the same period a year ago. The March data produced a reading of 86 for the Dodge Index (2000=100), the same as February. Since 2009, the Dodge Index has hovered within the range of 81 and 96.

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“This period of low-level stability is looking to be more and more extended, pushing back the time when renewed expansion for overall construction activity is likely to take hold,” said Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction.  “Public works had initially offset some of the weakness shown by other types of construction, but it’s now beginning to lose momentum, given waning support from the federal stimulus act, tight state budgets, and cutbacks in federal funding included in the recently approved fiscal 2011 appropriations. While multifamily housing has strengthened in hesitant fashion, single-family housing continues to be stalled.  For nonresidential building, there’s still the downward pull coming from the institutional categories, but on the plus side commercial building seems to have already reached bottom, and the gains for commercial building in March would appear to be a positive development going forward.  The note of caution for commercial building is that market fundamentals such as occupancies have only just begun to improve, and banks remain very cautious with regard to lending for new projects.”

Nonresidential Building
The nonresidential sector in March jumped 25% to $165.5 billion (annual rate).  Activity at the outset of 2011 had been particularly depressed, with the average for January and February down 14% from the monthly average for all of 2010.  Since the construction start statistics can be volatile on a month-to-month basis (and this has been true for nonresidential building in recent months), useful perspective is often provided by looking at quarterly figures.  In this light, nonresidential building in the first quarter of 2011 was down 2% from the fourth quarter of 2010, depicting a market that’s still receding but beginning to stabilize.

Most of the nonresidential structure types witnessed gains in March, reflecting in many cases the boost coming from large projects.  At the top of the list was office construction, which surged 87% in March, lifted by the start of a $1.1-billion data center in Utah for the National Security Agency.  The next two largest office projects that reached groundbreaking in March were a $99-million office renovation at the Jacob Javits Convention Center in New York City and a $75-million data center in Santa Clara, Calif. 

The manufacturing plant category in March climbed 42%, helped by the start of a $900 million semiconductor plant in Oregon. Store construction in March rose 37%, supported by $245 million for work on the retail portion of the Revel Resort Hotel and Casino in Atlantic City, N.J., which obtained financing to resume construction in February. Warehouse and hotel construction, up 67% and 43% respectively, were able to post substantial percentage gains in March with the help of large projects that were more moderate in scale. Warehouse construction in March included the start of two Amazon.com distribution facilities, valued at $48 million and $35 million, located in Tennessee. Hotel construction in March included the start of a $52-million hotel and casino in Wyandotte, Okla., and a $46-million hotel renovation in New York City.

On the institutional side, the educational building category rose 13% after a weak February, aided by the start of a $189-million facility at Yale University in New Haven, Conn., and a $100-million renovation for a National Institute of Health building in Bethesda, Md. Health-care facilities in March grew 15%, supported by the start of a $160-million hospital in Cincinnati, Ohio. For the smaller institutional categories, gains were posted by churches, up 26% from an extremely low amount in February, and amusement-related projects, up 6%. The public buildings category (courthouses and detention facilities) was flat in March, and transportation terminals dropped 36%.

Residential Building
The residential sector, at $118.1 billion (annual rate), slipped 3% in March.  For the first quarter of 2011, residential building edged up a slight 1% relative to the fourth quarter of 2010.  The March decline came as the result of a decreased amount of multifamily housing, which fell 21% after a strong gain in February. The largest multifamily projects that reached groundbreaking in March were the following – a $92 million military housing project in Lawton, Okla., a $72-million apartment building in New York City, and a $62-million townhouse project in Bryans Road, Md.  Murray noted, “Even with the March slowdown, the broad trend for multifamily housing is still viewed to be upward, continuing the improvement that took hold last year.” 

Single-family housing in March increased 2%, making a partial rebound after February’s weak amount. By geography, four of the five major regions showed slight growth for single-family housing in March, with the South Central up 6%, the South Atlantic and the Midwest each up 2%; and the Northeast up 1%.  The West was the one region to register a single-family decline in March, falling 5%

Nonbuilding Construction
The nonbuilding and public works sector in March dropped 19% to $121.3 billion (annual rate), retreating for the second straight month after the exceptional amount reported in January. For the first quarter of 2011, nonbuilding construction was down 2% compared to the fourth quarter of 2010.  The March plunge for nonbuilding construction was due in large part to a substantial decline for electric utilities, which fell 43% from a robust volume in February to a still healthy amount in March (up 25% from the average monthly pace for 2010). 

Large electric power projects that were reported as construction starts in March included a $1.1-billion natural gas power plant in Florida and a $1-billion solar energy facility in California. Public works construction in March registered a smaller decline, sliding 4% as the result of a mixed pattern by project type. Highway and bridge construction dropped 9%, continuing to settle back after January’s heightened pace. Both sewer and water supply construction registered declines in March, falling 13% and 12%, respectively. Stronger activity in March was reported for river/harbor development, up 51% with the aid of a $164-million shipyard pier replacement project in Virginia; and miscellaneous public works, up 6%.

The 10% shortfall for total construction on an unadjusted basis during the first three months of 2011 was the result of weaker activity for two of the three main sectors. Nonresidential building was down 14% year-to-date, reflecting this behavior by segment—commercial building, up 18%; manufacturing building, up 285%; and institutional building, down 34%.  The institutional year-to-date comparison is still affected by two very large projects that were reported as construction starts in early 2010: the $3-billion transit hub in lower Manhattan, and the $1.1-billion airport terminal project at Los Angeles International Airport. If these two large projects are excluded, then institutional building year-to-date in 2011 would be down 22% and the nonresidential building total would be down 3%. 

Residential building in the first three months of 2011 fell 14%, given the comparison to single-family housing’s early gains in 2010 that preceded its midyear stall.  Nonbuilding construction in the first three months of 2011 was unchanged from last year. By geography, total construction in the first three months of 2011 was the following: the Northeast, down 30%; the South Atlantic, down 24%; the Midwest, down 9%; the South Central, no change; and the West, up 7%.

Another view of the current state of the construction market is provided by looking at 12-month moving totals; in this case, the 12 months ending March 2011 compared to the 12 months ending March 2010. On this basis, total construction is down 5%, as the result of this pattern by sector— nonresidential building, down 9%; residential building, down 4%; and nonbuilding construction, down 1%. By geography, the 12 months ending March 2011 showed this behavior for total construction: the South Atlantic, down 16%; the Northeast, down 9%; the South Central, down 4%; the Midwest, no change, and the West, up 3%.

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