New construction starts in June receded 1% to a seasonally adjusted annual rate of $489.5 billion, according to McGraw Hill Construction, a division of McGraw Hill Financial. Nonresidential building lost momentum in June after strengthening during the previous two months, and housing experienced a pause from its recent upward trend.
Meanwhile, nonbuilding construction advanced in June, lifted by the start of several large bridge projects. For the first six months of 2013, total construction starts on an unadjusted basis were reported at $233.8 billion, down 2% from the same period a year ago. The 2013 year-to-date decline for total construction was due primarily to a sharp reduction for electric utilities compared to a robust first half of 2012. If electric utilities are excluded, total construction starts for the first six months of 2013 would be up 9% from last year, led by substantial growth for housing.
June’s construction start statistics produced a reading of 104 for the Dodge Index (2000=100), compared to 105 for May. During the first four months of 2013, the Dodge Index averaged 99, slightly below its full year average for 2012 at 101, so May and June provided some evidence that the pace of construction starts is beginning to pick up.
“The first half of 2013 revealed a mixed performance by project type, producing a hesitant pattern for total construction starts,” said Robert A. Murray, vice president of economic affairs for McGraw Hill Construction. “On the plus side, the housing market continues to strengthen, and it should be able to register further gains this year even with the recent hike in mortgage rates. Commercial building continues to slowly advance, and public works construction to this point has not seen much dampening as the result of the sequester.
“However, on the negative side, the retreat for institutional building has turned out to be steeper than expected, manufacturing plant construction has weakened, and new electric utility starts have plunged from last year’s record pace,” Murray said.
“Assuming the downward pull from the negative sectors in this year’s first half becomes less severe in the second half, then total construction starts for all of 2013 should still be able to register growth, but at just a single-digit pace in similarity to 2012.”
Nonresidential building in June slipped 2% to $151.3 billion (annual rate), retreating slightly after May’s 9% gain. The institutional sector in June showed diminished activity for healthcare facilities, down 13%, as hospital mergers and the uncertainty related to the implementation of the Affordable Care Act continue to restrain construction. The largest health-care projects reported as June starts were valued at $200 million or less, including a $200-million critical care tower in Akron, Ohio, and a $114-million renovation to a university medical center in New York City.
The public buildings category in June plummeted 33% from its briefly improved volume in May, returning to the weak amount witnessed earlier this year. The educational buildings category in June managed to strengthen 11%, suggesting that it’s now leveling off after particularly weak activity in recent months.
Large educational building projects that reached groundbreaking in June included a $252-million academic building for the New York City College of Technology in Brooklyn, N.Y., an $81-million middle school in Pennsylvania, and an $80-million high school addition in Connecticut. Amusement-related construction increased 2% in June, while larger gains were reported for two of the smaller institutional categories from depressed activity in May—transportation terminals, up 24%; and churches, up 29%.
The commercial sector in June showed varied behavior. Office construction jumped 44%, led by the June start of an $861-million computing center for the U.S. Army at Fort Meade, Md. Other large office projects reported as June starts were the $200-million Samsung American Headquarters in San Jose, Calif., and a $110-million office complex in Richmond, Va. Hotel construction in June dropped 29% after an elevated May amount, with June’s decline cushioned by the start of a $185-million hotel/casino renovation in Las Vegas.
Both stores and warehouses slipped back in June, falling 6% and 7% respectively. The manufacturing plant category in June fell 19% after a strong May, with the largest June projects being a $175-million iron ore pellet plant in Indiana and a $165-million refinery expansion in Salt Lake City.
During the first six months of 2013, nonresidential building decreased 9% from a year ago. The institutional sector dropped 13%, including these year-to-date declines—educational buildings, down 12%; health-care facilities, down 18%; and public buildings, down 34%. The manufacturing plant category in this year’s January-June period fell 29%, reflecting the comparison to a first half of 2012 that included such projects as a $375-million petrochemical plant in Louisiana and a $346-million metals processing plant in North Carolina.
In contrast, the commercial categories in this year’s first half climbed 3%, with hotels up 28%, warehouses up 6%, and office buildings up 1%, although stores dropped 7%. The year-to-date decline for stores was relative to a first half of 2012 that included the $400-million renovation of Macy’s flagship store in New York City.
“As 2013 progresses, it’s expected that the gap for nonresidential building relative to last year will narrow, since the comparison will include the slower pace for nonresidential building that occurred during the latter half of 2012,” Murray said.