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July Construction Starts Retreat 10% Nationwide

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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 Cos.

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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 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,” said 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
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 13 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. They were: 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.

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