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September Construction Jumps 16% Nationwide

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New construction starts in September climbed 16% to a seasonally adjusted annual rate of $507.2 billion, says McGraw-Hill Construction, a division of The McGraw-Hill Cos. The nonbuilding construction sector (public works and electric utilities) led the way, helped in particular by a massive natural gas plant and several large electric utility projects.

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Meanwhile, nonresidential building retreated after its improved performance in August, and residential building eased back slightly. Through the first nine months of 2012, total construction starts on an unadjusted basis came in at $349.6 billion, up 5% compared to the same period a year ago.

The latest month’s data lifted the Dodge Index to 107 (2000=100), up from 92 in August. This marked the second highest reading for the Dodge Index so far in 2012, following the 115 reported in April, which benefitted from the start of an $8.5-billion nuclear power plant in South Carolina.

“The robust pace for electric utility and gas plant construction during 2012 has occasionally produced volatility for total construction on a month-to-month basis,” said Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction.

“If electric utilities and gas plants are excluded, the level of construction starts in 2012 would be up 2% year-to-date, helped by this year’s further growth for multifamily housing and the emerging recovery for single-family housing. As for the other construction sectors, commercial building has shown some strengthening during 2012, while its dollar amount has grown less than 1% year-to-date, square footage is up 16%.

“However, decreased activity continues to be reported in 2012 for institutional building, manufacturing plants and public works. Going into 2013, it’s not expected that electric utilities will be able to maintain the record pace witnessed in 2011 and 2012, and tight government budgets will restrain the institutional building and public-works sectors. It will be up to housing and commercial building to provide upward momentum, and the impending ‘fiscal cliff’ makes continued growth for these sectors less certain,” Murray said.

Nonbuilding Construction

Nonbuilding construction in September soared 67% to $197.9 billion (annual rate). The main lift came from a 335% surge for the electric utility and gas plant category, as a $4.8-billion liquefied natural gas plant in Louisiana (the Sabine Pass Liquefaction Project) was included as a September construction start.

Without this project, the gains for several levels of construction activity in September would have been more moderate—electric utilities and gas plants, up 60%; nonbuilding construction, up 19%; and total construction, up 3%. Six electric utility projects, each valued at more than $100 million, started construction in September—a $750-million wind farm in Texas, a $484-million transmission line in Nevada and California, two $300-million gas-fired power plants in Texas, a $171-million transmission line in Kansas, and a $122-million wind farm in Michigan.

Public works construction overall was up 10% in September, helped by gains from the environmental public works categories. Water supply construction increased 48%, aided by the start of a $192-million water quality control plant in California. River and harbor development work in September advanced 38%, while sewers rose 19%.

The “other public works” category, which includes a diverse set of projects, climbed 35% in September, with the lift coming from a $326-million mass transit rail line in California, a $250-million outdoor sports stadium for Baylor University in Waco, Texas, and a $220-million petroleum pipeline in Louisiana and Mississippi. On the negative side, highways and bridges settled back in September, falling 1% and 24% respectively. For the first nine months of 2012, highways and bridges together dropped 10% compared to last year, including construction start declines for these states—Texas, down 41%; Ohio, down 19%; and Florida, down 16%.

Nonresidential Building

Nonresidential building, at $139.0 billion (annual rate), fell 5% in September, retreating after the 7% gain in the previous month. The institutional sector showed declines for the majority of its project types. The educational building category decreased 16% after its August upturn, despite the start of a $110-million science and research center for Temple University in Philadelphia, as well as groundbreaking for three large high schools located in Massachusetts ($105 million), Minnesota ($78 million), and Texas ($70 million).

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