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May Construction Starts Retreat 5% Nationwide

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At a seasonally adjusted annual rate of $513.4 billion, new construction starts in May dropped 5% from the previous month, according to McGraw Hill Construction, a division of McGraw Hill Financial.

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The reduced pace for total construction starts reflected a moderate loss of momentum for nonresidential building and housing, while the nonbuilding construction sector eased back slightly.

The total construction decline followed two months of strengthening activity, although May’s level was still above the lackluster volume registered at the outset of 2014. For the first five months of 2014, total construction starts on an unadjusted basis were $201.5 billion, down 1% from the same period a year ago.

The May statistics lowered the Dodge Index to 109 (2000=100), compared to a revised 114 for April. During the first two months of 2014, the Dodge Index was reported at 103.

“After the slow beginning to 2014, construction activity during March and April regained upward momentum, and May’s retreat does not necessarily mean that renewed expansion is stalling,” said Robert A. Murray, chief economist for McGraw Hill Construction.  “The downturn for nonresidential building in May was the result of a sharp pullback by the often-volatile manufacturing plant category after its huge gain in April. Residential building has often reflected the monthly up-and-down pattern for multifamily housing, which despite a setback in May can still be viewed as trending upward.

“Of more concern for residential building is single-family housing, which has yet to move beyond its recent plateau and resume growth. Nonbuilding construction in May was pulled down by further weakness for electric utilities; at the same time, public works construction made a partial rebound in May after retreating during the previous two months,” Murray said.

Nonresidential Building

Nonresidential building in May fell 5% to $192.2 billion (annual rate), sliding back following a 15% jump in April. Manufacturing plant construction in May plunged 87% after being lifted in April by the start of several large projects, including a $3-billion ethylene plant in Texas.

In contrast, the largest manufacturing project reported as a May start was an $80-million manufacturer-owned research laboratory in New Jersey. If the manufacturing category is excluded, nonresidential building would have been essentially flat in April following a 20% gain in May.

Commercial building showed particularly strong growth in May, climbing 31%, led by gains for offices and hotels. Office construction in May surged 94%, led by the start of the massive new headquarters for Apple Inc. in Cupertino, Calif., with $2.3 billion estimated for the office portion of the project’s $2.5-billion construction cost.

Other large office projects that reached the construction start stage in May included a $130-million data center in Elk Grove, Ill., and a $56-million office building in San Diego. Through the first five months of 2014, the top five metropolitan areas ranked by the dollar volume of new office starts were: San Jose, New York City, Houston, Washington, D.C., and Boston.

Hotel construction in May increased 101%, boosted by the start of two large projects—the $272-million Marriott Marquis Hotel in Houston, and the $260-million Cleveland Convention Center Hotel in Cleveland. After showing improved activity in April, both stores and warehouses retreated in May, falling 23% and 21% respectively.

The institutional side of nonresidential building increased 11% in May, helped by substantial gains for several smaller institutional structure types.  The public buildings category jumped 144%, lifted by the start of the $396-million San Diego County Central Courthouse in San Diego, and the $200-million Stockton Courthouse in Stockton, Calif.

The transportation terminal category increased 81%, led by $208 million for work on the East 86th Street Station on the Second Avenue Subway Line in New York. The amusement-related category advanced 17%, but church construction dropped 7%.

The largest institutional category, educational buildings, edged up 1% in May, supported by groundbreakings for such projects as a $98-million high school in Manassas, Va., and a $79-million high school in Leander, Texas.  Health-care facilities in May slipped 5%, although the latest month did include groundbreakings for several large hospital projects, located in Huntley, Ill. ($210 million), Barrington, Ill. ($150 million) and Mansfield Texas ($118 million).

Residential Building

Residential building, at $205.6 billion (annual rate), fell 7% in May.  Multifamily housing dropped 25% after a gain of similar size in April, pausing from this category’s lengthy upward trend.  Even with the decline, May did see groundbreaking for five large multifamily projects valued each in excess of $100 million, located in San Francisco ($140 million), Los Angeles ($135 million), Arlington, Va. ($126 million), Brooklyn, N.Y. ($111 million) and New York City ($105 million).

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