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May Construction Climbs 5 Percent

At a seasonally adjusted annual rate of $495.7 billion, new construction starts in May advanced 5 percent from the previous month, according to McGraw Hill Construction, a division of McGraw Hill Financial.  Much of the upward lift came from nonresidential building, which registered moderate growth for the second month in a row after its sluggish performance at the outset of 2013.  Smaller gains in May were reported for housing and nonbuilding construction (public works and electric utilities).  During the first five months of 2013, total construction starts on an unadjusted basis were reported at $187.6 billion, down 3 percent from the same period a year ago.  The 2013 year-to-date volume for total construction reflected a steep decline in the dollar amount for new electric utility projects relative to a robust first half of 2012.  If electric utilities are excluded, total construction starts would be up 10 percent year-to-date, helped in particular by the strengthened pace for housing.

May’s data raised the Dodge Index to 105 (2000=100), up from the 100 that was reported for April, and slightly above the average Index reading for all of 2012 at 101.  “The construction industry has shown modest improvement over the past year, helped by some project types while restrained by others,” stated Robert A. Murray, vice president of economic affairs for McGraw Hill Construction.  “The housing sector played a leading role last year in lifting overall construction activity, and while this year’s month-to-month gains have been smaller, housing continues to lead the hesitant construction expansion.  Nonresidential building has yet to provide much of a contribution, as tenuous gains for commercial building have been offset by further weakness for institutional building.  Still, the April and May pickup for nonresidential building could be a sign of more growth to come.  As for nonbuilding construction, the negative impact from the sequester has so far turned out to be less severe on the public works categories than anticipated.  However, new electric utility starts are in the midst of sharp decline from last year’s record amount, and the extent of that decline is limiting whatever gain may be possible this year for total construction.”

Nonresidential building in May grew 9 percent to $156.4 billion (annual rate), following its 6 percent rise in April.  For the commercial categories, stores and shopping centers are gathering momentum, with a 16 percent increase reported for May. Large retail projects that reached groundbreaking in May included a $60 million shopping center in Fresno, Calif. and the $52 million second phase of the City Point retail and residential complex in Brooklyn, N. York  New hotel construction starts soared 94% in May, boosted by the $415 million.

Office construction in May edged up 3 percent, following a substantial 58 percent jump in April.  Large projects in May that helped to keep office construction at its improved pace were the $250 million renovation of the International Monetary Fund Headquarters in Wash. D.C., the $200 million renovation to the United Nations General Assembly Building in New York, N. York, a $120 million office building in McLean, Virg. and a $113 expansion to a data center in Dallas, Tx.  Warehouse construction was the one commercial project type to retreat in May, sliding 7 percent, despite the start of a $100 million distribution facility in Edgerton, Ka.  The nonresidential building total was helped in May by a considerable gain for manufacturing plants, which jumped 70 percent with the start of a $378 million technology development center in Malta, N. York and a $110 million expansion to a healthcare products manufacturing plant in Athens, Ga.

The institutional categories in May showed a mixed pattern.  Educational facilities rebounded 10 percent after a weak April, helped by such projects as the $250 million expansion of the San Francisco Museum of Modern Art, a $91 million high school in Flower Mound, Tx. and a $67 million high school addition in Alexandria, Virg.  May included groundbreaking for 16 high school projects each with a construction start cost of $10 million or more. The public buildings category in May climbed 95 percent from a very depressed April, supported by the start of a $125 million detention facility in Redwood City, Calif.  However, healthcare facilities fell back 10 percent in May, despite the start of a $175 million hospital tower in Orlando, Flor.  Other declines were reported for amusement-related projects, down 17 percent; churches, down 27 percent; transportation terminals, down 33 percent.  The decline for transportation terminals came relative to a very strong April, and occurred despite the May start of several large airport terminal projects – a $229 million renovation of Terminal Five at Los Angeles International Airport, a $90 million gate replacement project at Fort Lauderdale International Airport, and a $75 million renovation for Terminal E at Dallas-Ft. Worth International Airport.

The first five months of 2012 featured an exceptional amount of large electric utility projects to reach the construction start stage, led by two nuclear projects – $8.5 billion for Units Three and Four at the Vogtle nuclear power facility in Georgia and $8.5 billion for Units Two and Three at the V.C. Summer nuclear power facility in South Carolina.  Additional large electric utility projects that reached the construction start stage in the first five months of 2012 included a $1.3 billion gas-fired power plant in Florida, a $1.1 billion gas-fired power plant in Virginia, and a $1.1 billion solar energy complex in California.  So far in 2013, the largest electric utility projects to reach the construction start stage are the $2.3 billion solar power facility in California and a $1.2 billion upgrade to a coal-fired generating plant in Kentucky.

Residential building in the first five months of 2013 advanced 32 percent compared to last year, reflecting similar gains for single family housing, up 32 percent; multifamily housing, up 30 percent.  Nonresidential building during this year’s first five months retreated 8 percent, due to a 13 percent drop for the institutional categories as well as a 20 percent decline for manufacturing plants.  Commercial building on a year-to-date basis registered a 2 percent gain from last year.

By geography, total construction starts during the first five months of 2013 featured gains in three regions – the West, up 10 percent; the Northeast, up 7 percent; and the South Central, up 6 percent.  Year-to-date shortfalls were reported for two regions – the Midwest, down 7 percent; and the South Atlantic, down 22 percent.  If electric utilities are excluded from the construction start statistics in the South Atlantic, that region would post a 23 percent year-to-date gain.

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