January Construction Starts Slide 13% Nationwide
The value of new construction starts fell 13% in January to a seasonally adjusted annual rate of $485 billion, according to McGraw Hill Construction, a division of McGraw Hill Financial. The downturn followed a healthy performance in December, which was the third highest month for total construction starts during 2013.
January’s retreat encompassed all three main construction sectors, with moderate declines reported for nonresidential building and housing, as well as a more substantial loss of momentum for nonbuilding construction (public works and electric utilities) after a particularly robust December. On an unadjusted basis, total construction starts in January came in at $34.1 billion, down 5% from the same month a year ago.
The January statistics lowered the Dodge Index to 103 (2000=100), compared to a revised 118 for December and below the average index reading of 110 for all of 2013.
“The year 2014 began slowly, due to behavior specific to each of the three main construction sectors,” said Robert A. Murray, chief economist for McGraw Hill Construction. “Nonresidential building in 2013 advanced 7%, but the progress was occasionally hesitant, including sluggish activity at the end of last year that carried over into January. At the same time, the prospects for continued growth for nonresidential building during 2014 are generally positive, helped by receding vacancies for commercial properties and some improvement in the fiscal health of state governments.
“Residential building in 2013 climbed 24%, but towards the end of last year growth began to decelerate as mortgage lending to first-time homebuyers remained stringent,” Murray said. “The January slowdown for housing was due in part to tough winter weather conditions, yet the deceleration in recent months bears watching going forward. Nonbuilding construction in 2013 dropped 12%, as the steep pullback by electric utilities outweighed surprising growth for public works.
“Last year’s nonbuilding performance was also quite volatile on a month-to-month basis, including strong activity in December that’s now been followed by a sharp reduction in January. With 2014 not likely to see the same volume of very large public works projects reach the construction start stage, nonbuilding construction is expected to register another decline this year, and January’s downturn is part of that broader trend,” Murray said.
Nonresidential building in January dropped 6% to $157.3 billion (annual rate) and was down 7% from last year’s average monthly pace. The commercial building sector in January fell 13%, with declines from the previous month shown by hotels, down 43%; and warehouses, down 3%. Hotels and warehouses posted strong percentage growth during 2013, with each of those sectors rising 29%. The sluggish activity in January is viewed as a pause in what’s expected to be continued growth for both structure types during 2014.
Cushioning the January decline for the commercial-building sector was a 21% increase for office construction, helped by groundbreaking for such projects as a $125-million corporate headquarters in Houston, a $66-million office park in Mountain View, Calif., and a $44-million office building in Raleigh, N.C. Store construction in January improved 4%, reflecting the start of a $30-million shopping mall in Lakeland, Fla., and a $25-million department store in Las Vegas.
The manufacturing plant category had a strong January, jumping 44%, due to the impact of two very large projects—a $1.2-billion propane dehydrogenation facility in Texas and a $450-million oil refinery expansion in North Dakota.
The institutional building sector in January decreased 12%, as the recent signs of stability after a lengthy five-year decline continue to be tenuous. The educational building category receded 3%, although the month did include the start of several large university-related projects—a $155-million renovation to an academic building at Princeton University in Princeton, N.J., a $100-million business school at Baylor University in Waco, Texas, and a $92-million science and laboratory facility at the University of Tennessee in Knoxville.
Health care facilities in January dropped 17%, as this structure type continues to show an up-and-down pattern on a monthly basis, keeping renewed growth in a sustained manner on hold. The smaller institutional categories in January were mixed, with reduced activity reported for transportation terminals (down 31%) and amusement-related work (down 20%), while public buildings (up 6%) and religious buildings (up 58%) showed improvement from depressed levels in December.