Public Works And Electric Utilities Boost Nonbuilding Construction 22 Percent In June

Aug. 6, 2004
Nonbuilding construction (public works and electric utilities) rebounded after a weak May, offsetting a slight drop in nonresidential building and housing in June, according to a report by McGraw-Hill Construction, New York.

Nonbuilding construction (public works and electric utilities) rebounded after a weak May, offsetting a slight drop in nonresidential building and housing in June, according to a report by McGraw-Hill Construction, New York. Nonbuilding construction in June jumped 22 percent to $96.1 billion.

New construction starts increased 1 percent in June to a seasonally adjusted annual rate of $565.1 billion, according to McGraw-Hill Construction, New York. During the first six months of 2004, total construction on an unadjusted basis was reported at $286.2 billion, a 10 percent gain compared to the same period a year ago.

Since January, new construction starts have seen gradual improvement, regaining the elevated level that was achieved at the end of last year. “June was helped by a stronger volume of public works construction, which so far in 2004 has been one of the weaker construction sectors,” said Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction.

“While June’s upturn for public works was a welcome development, this sector going forward will still be limited by tight fiscal conditions for the federal and state governments. During the first half of 2004, the construction industry continued to be supported by the robust performance of single-family housing, in combination with stability for commercial building. It’s expected that the second half of 2004 will see single-family housing ease back a bit, and commercial building remains the sector most likely to pick up the slack.”

Nonbuilding construction. Gains were reported for most of the public works categories, including: highways, up 9 percent; bridges, up 13 percent; river/harbor development, up 18 percent; and sewers, up 47 percent. The June nonbuilding total was also boosted by electric utilities, which increased 209 percent from an extremely weak May. Despite the large percentage gain, June’s level for electric utility construction was still about one-half the average monthly pace during 2003.

During the first six months of 2004, nonbuilding construction was 4 percent below the corresponding 2003 period. Electric utility construction dropped 8 percent in the first half of 2004, continuing the downward trend in progress for the past two years.

Nonresidential building. At $160.1 billion, nonresidential building retreated 2 percent in June. The institutional sector was generally weaker in June, including declines for transportation terminals, down 5 percent; healthcare facilities and churches, each down 9 percent; and amusement-related projects, down 52 percent from a very strong May. The institutional slide was cushioned by June gains for schools, up 7 percent; and public buildings (courthouses and detention facilities), up 22 percent. The commercial/industrial categories showed a mixed performance in June, with weaker contracting for stores, down 7 percent; manufacturing buildings, down 12 percent; and warehouses, down 13 percent. On the plus side, June included an 18 percent increase for offices, boosted by the start of a $120 million expansion to an office complex in Seattle and an $80 million government office building in suburban Maryland. Hotel construction in June soared 144 percent, aided by the start of a $90 million convention-center-related hotel in Boston and a $90 million hotel in Niagara Falls, N.Y.

For the first half of 2004, nonresidential building was 1 percent lower than its year-ago amount. School construction, the largest nonresidential category by dollar volume, was down 4 percent as it continues to settle back from its peak in 2001. The other institutional categories were able to post first-half 2004 gains, including churches, up 1 percent; transportation terminals, up 6 percent; public buildings, up 7 percent; health-care facilities, up 8 percent; and amusement-related projects, up 16 percent (reflecting a pickup in convention center starts). Manufacturing buildings were down 24 percent from the first half of 2003. The commercial categories included a 5 percent reduction for offices, less severe that the full-year declines of 8 percent in 2003 and 24 percent in 2002. Murray said, “Office construction appears to be stabilizing in 2004, following its retrenchment over the 2001-2003 period. Office projects expected to reach groundbreaking in the coming months should help the full-year 2004 total for new office starts to be at least even with 2003, with some possibility for a modest gain.” Stores and warehouses in the first half of 2004 were essentially steady with 2003, registering slight declines of 1 percent and 2 percent, respectively. Hotel construction in the first half of 2004 was up 8 percent, continuing the expansion for this structure type that took hold during 2003.

Residential building. At $308.9 billion, residential building slipped 2 percent in June. Single-family housing held steady, while multifamily housing retreated 12 percent from a very strong May. The 30-year fixed mortgage rate averaged 6.3 percent in May and June, up from 5.8 percent in April, but single-family housing has yet to show much negative impact. The 30-year fixed mortgage rate has since settled back to 6 percent during July.

For this year’s January-June period, residential building was up 20 percent compared to its lackluster performance during the first half of 2003. Since the housing market strengthened considerably during the final months of 2003, it’s expected that the year-to-date percentage growth will diminish as 2004 proceeds. By structure type, single-family housing in 2004’s first half was up 21 percent, while multifamily housing grew 14 percent.

For total construction, the 10 percent increase reported for the United States in the first half of 2004 compared to last year was due to this breakdown by geography — the South Atlantic, up 18 percent; the West, up 10 percent; the South Central, up 7 percent; and the Midwest and Northeast, each up 5 percent.