At a seasonally adjusted annual rate of $540.6 billion, new construction starts in August dropped 9%, according to McGraw Hill Construction, a division of McGraw Hill Financial.  The decline followed July’s elevated volume, the strongest so far in 2014, and brought activity back to the average pace reported during the first seven months of this year.

By major sector, nonresidential building fell sharply, after being lifted in July by the start of several large manufacturing plant projects, while nonbuilding construction (public works and electric utilities) also retreated.  Residential building in August ran counter by posting a modest gain, helped by the continued growth of multifamily housing. Through the first eight months of 2014, total construction starts on an unadjusted basis were $361.4 billion, up 4% from the same period a year ago.

The August statistics lowered the Dodge Index to 114 (2000=100), compared to a revised 126 for July.

“The broad trend for construction activity remains upward, but on a month-to-month basis there are still the occasional setbacks,” said Robert A. Murray, chief economist for McGraw Hill Construction. “Nonresidential building over the past two months was boosted by the start of several unusually large energy-related manufacturing projects, so the pullback in August was not unexpected.

“The commercial side of nonresidential building continues to see moderate growth, and there’s now further evidence that the institutional structure types have at least stabilized after a lengthy five-year decline,” Murray said. “While public works construction is now settling back, the August passage of the $10.8-billion patch to the Highway Trust Fund should help to keep the slide from getting too severe. Residential building continues to be supported by the ongoing strength shown by multifamily housing. However, this year’s pause for single-family housing has emerged as an area of concern, limiting the growth that’s being reported for total construction activity.”

Nonresidential Building

Nonresidential building in August plunged 19% to $184.9 billion (annual rate), after strong gains that raised activity for this sector 20% over the past two months.

The manufacturing plant category in August dropped 81% from a July that had included the start of a $3.0-billion petrochemical plant and a $1.7-billion ethylene plant, both in Texas, among other large manufacturing plant starts.  August did include the groundbreaking for a $500-million polyethylene plant expansion in Texas and a $130-million fabric manufacturing plant in Louisiana—substantial projects by themselves but smaller in magnitude and number than the large projects entered as construction starts in July. If the manufacturing plant category is excluded, nonresidential building in August would have posted a 9% gain.

The commercial building categories overall in August advanced 6%. Store construction led the way by jumping 27%, aided by the $157-million retail portion of the $957-million Nordstrom Tower, a massive residential-retail-hotel and mixed-use high-rise that reached groundbreaking in New York City. Warehouse construction in August grew 8%, maintaining the improvement that’s been shown after a weak first quarter.

Office construction edged up 2%, helped by the August start of such projects as a $375-million office building in Milwaukee, a $175-million office tower in Bellevue, Wash., and a $117-million corporate headquarters in Portland.  Hotel construction retreated 10% after a strong gain in July, although August did include the start of such projects as a $200-million hotel in Washington, D.C. and the $82-million hotel portion of the Nordstrom Tower in New York City.

The institutional building group in August climbed 12%. Health care facilities surged 76% after a weak July, lifted by the start of two large projects in New York City—an $800-million clinical medical facility and an $800-million ambulatory care center. While the health care facilities category has been generally lackluster for much of 2014, up only 2% year-to-date, there have been a few months like August that featured the start of noteworthy health care construction projects.

Educational buildings, the other major institutional category, receded 9% in August after July’s 11% gain. Large educational building projects that reached groundbreaking in August included a $120-million research lab at Michigan State University in East Lansing, Mich., and an $84-million law school at Arizona State University in Phoenix. Through the first eight months of 2014, the educational building category was up 8% from a year ago.

The smaller institutional categories revealed a mixed pattern in August.  Gains were reported for public buildings and churches, up 27% and 17% respectively, as each showed improvement from weak activity in July.  Declines were reported in August for amusement-related work and transportation terminals, down 10% and 19%, respectively.