The value of new construction starts dropped 12% in January to a seasonally adjusted annual rate of $469.1 billion, according to McGraw-Hill Construction, a division of McGraw-Hill Financial. The decline followed a sharp 23% increase for total construction in December and brought the level of contracting back to the average pace reported during 2012.
Much of January’s downturn was due to decreased activity for nonresidential building and housing, while the nonbuilding construction sector (public works and electric utilities) held close to its December volume. On an unadjusted basis, total construction starts in January were reported at $33.1 billion, up 11% from the same month a year ago.
The January statistics lowered the Dodge Index to 99 (2000=100), down from December’s 112, and the same as the reading of 99 for full-year 2012.
“The pullback for construction starts in January was not surprising, given the up-and-down pattern that was present for much of 2012,” says Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. “The large increase in December followed two months of lackluster activity in October and November, and it’s likely that December benefitted from the start of projects that were earlier put on hold given the uncertain economic and political environment.
“Some of the uncertainty was eased by the January 1 agreement between the Obama Administration and Congress, which averted the fiscal cliff for the time being, as well as by the move by Congress to push back the debt ceiling deadline to May. However, the automatic spending cuts as part of the sequestration process are scheduled to begin on March 1, and their implementation is likely to restrain the fragile economic expansion. The upward trend for housing is still expected to continue during 2013, along with modest improvement for commercial building, but this year’s prospects for institutional building and public works remain in doubt,” Murray says.
Nonresidential building in January fell 20% to $150.6 billion (annual rate), retreating after the 33% jump reported in December. On the institutional side, the educational building category in January dropped 9%, following a brief upturn in December. Three large medical research facilities reached groundbreaking in January, located in Farmington, Conn. ($191 million), La Jolla, Calif. ($160 million), and Atlanta ($85 million), but these were not enough to offset weaker activity for other education-related projects.
Health care facilities in January plunged 35%, down from December, which had been boosted by several large hospital projects, including a $615-million hospital expansion in Palo Alto, Calif. In contrast, the largest health care project included as a January start was a $52-million dental health facility in San Antonio.
Most of the smaller institutional categories showed weaker activity in January, including declines for transportation terminals, down 54%; public buildings, down 39%; and churches, down 35%. The one institutional category able to report a January gain was amusement-related work, which rose 13% relative to December with the help of a $50-million lottery and racetrack facility in Lebanon, Ohio.
On the commercial side, office construction in January retreated 27% from December, which had been lifted by the start of an $850-million high-rise at the Hudson Yards development in New York City. While not as massive as what took place in December, there were several large office projects that reached groundbreaking in January, including a $150-million data center in Richmond, Va., a $90-million corporate center in Hoboken, N.J., and a $52-million corporate headquarters renovation in San Francisco.
Store construction in January decreased 19%, although January did include the start of a $105-million enclosed mall in the Bronx, N.Y. Hotel construction ran counter to the generally downward trend, jumping 97% in January. The substantial increase for the hotel category came from a $400-million resort hotel in Orlando, plus three large hotel renovation projects in New York City, valued respectively at $85 million, $70 million and $58 million.
Warehouse construction also strengthened in January, rising 11%. The manufacturing plant category in January dropped 39% from its heightened December amount, although January did include the start of a $550-million methanol plant in Louisiana and a $235-million cellulosic ethanol plant in Iowa.
Residential building, at $172.7 billion (annual rate), dropped 11% in January. Much of the decline reflected a steep 30% retreat for multifamily housing, following elevated contracting for this category in December as the result of three projects valued each in excess of $200 million. In January, the three largest multifamily projects were an $84-million apartment complex in Cambridge, Mass., a $74-million apartment tower in Brooklyn, N.Y., and a $71-million apartment complex in Secaucus, N.J.