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June Construction Starts Retreat 1% Nationwide

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New construction starts in June slipped 1% to a seasonally adjusted annual rate of $446.1 billion, according to McGraw-Hill Construction, a division of The McGraw-Hill Cos. After the elevated activity reported during March and April, which reflected the lift coming from the start of two nuclear power projects, total construction in May and June returned to a level just slightly above the average monthly pace reported during the previous year.

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June featured a moderate loss of momentum for nonresidential building, after this sector’s improved performance in May.
At the same time, residential building in June maintained its gradual upward trend, while nonbuilding construction was unchanged as the result of divergent behavior by public works and electric utility segments. For the first six months of 2012, total construction starts on an unadjusted basis came in at $225.0 billion, up 4% from the same period a year ago.
June’s data produced a reading of 94 for the Dodge Index (2000=100), compared to a revised 95 for May. For all of 2011, the Dodge Index averaged 92.

“The construction start statistics for the most part continue to hover within a set range, showing gains for some project types but further weakness for other project types,” stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. “Total construction activity had jumped in March and April, due primarily to the start of two massive nuclear power projects – $8.5 billion for work on Units 3 and 4 at the Vogtle nuclear power facility near Waynesboro, Ga., and another $8.5 billion for work on Units 2 and 3 at the Virgil C. Summer nuclear power facility near Jenkinsville, S.C.

"Aside from the lift coming from this year’s nuclear power projects, total construction activity during the first half of 2012 has basically shown a hesitant up-and-down pattern. On the plus side, gains are being reported for several commercial building categories, and the strengthening trend for multifamily housing is now being joined by moderate growth for single family housing.
“On the negative side, such institutional project types as educational buildings and health-care facilities continue to weaken, along with further declines for several public works categories.”


Nonresidential Building

Nonresidential building in June fell 4% to $148.7 billion (annual rate), following its 12% increase in May. For the commercial sector, office construction in June dropped 31% after jumping 34% in May, which benefitted from the start of several large data center and corporate headquarters projects. The largest office projects reported as June starts were a $200-million data center in Kings Mountain, N.C., a $65-million office building in Arlington, Va., and a $35-million renovation to one of the World Bank facilities in Washington, D.C.

Hotel construction was also down sharply in June, falling 23% after surging 49% in May. Store construction in June grew 4%, helped by groundbreakings for a $52-million outlet mall in Rosemont, Ill., and a $32-million outlet mall in Woodstock, Ga. Warehouse construction in June managed to edge up 1%, aided by the start of a $78-million Family Dollar distribution center in Utah. Manufacturing plant construction in June was down 10%, although June did include the start of several large projects—a $375-million petrochemical plant expansion in Louisiana, a $196-million pharmaceutical research facility in Massachusetts, and a $135-million construction equipment manufacturing plant in Georgia.

The institutional sector in June showed a mixed performance by project type. The educational building category grew 4%, helped by such June projects as a $166-million research center at the University of Chicago, a $101-million technical school in Danvers, Mass., and an $80-million building at Northwestern University in Evanston, Ill. Health-care facilities in June climbed 13%, supported by such projects as a $300-million hospital tower in Columbus, Ohio; a $130-million hospital in Morganton, N.C., and a $113-million hospital addition in Boulder, Colo.

While both the education and health-care categories showed gains in June relative to May, for each category, the level of activity in June was still below its average monthly pace for 2011, with educational buildings down 8% and health-care facilities down 11%. For the smaller institutional categories, amusement-related construction advanced 43% in June from a very weak May, lifted by the start of such projects as an $80-million sports arena in Anchorage and a $42-million casino in Laveen, Ariz. Church construction was also up from a very weak May, rising 41%. June declines were reported for the public buildings category (detention facilities and courthouses), down 13%; and transportation terminals, down 40%.

During the first six months of 2012, nonresidential building fell 16% from a year ago. The year-to-date decline for nonresidential building has been getting smaller as 2012 has progressed, although it still reflects the comparison to the briefly elevated amount during the first half of 2011, which included such projects as the $1.2-billion redevelopment of the Delta Terminal at New York’s JFK International Airport and the $1.1-billon National Security Agency data center in Utah.

The commercial categories year-to-date dropped 4%, pulled down by a 24% decline for office construction. If last year’s $1.1-billion data center in Utah is excluded from the comparison, then commercial building in 2012’s first half would be unchanged and office construction would be down a less pronounced 15%. The other commercial categories showed gains for the first half of 2012 versus last year—stores and hotels, each up 7%, and warehouses up 12%.

Manufacturing plant construction in the first six months of 2012 dropped 28% from a year ago. The institutional categories in the January-June period of 2012 came in 20% below last year, including declines of 16% for educational buildings and 19% for health-care facilities.

Residential Building

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