June Construction Settles Back One Percent

New construction starts in June receded one percent 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.

For the first six months of 2013, total construction starts on an unadjusted basis were reported at $233.8 billion, down two percent 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 nine percent 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,” says 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. 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 two percent to $151.3 billion (annual rate), retreating slightly after May’s nine percent gain. The institutional sector in June showed diminished activity for healthcare facilities, slipping 13 percent as hospital mergers and the uncertainty related to the implementation of the Affordable Care Act continue to restrain construction. The largest healthcare 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.

During the first six months of 2013, nonresidential building decreased nine percent from a year ago. The institutional sector dropped 13 percent, including these year-to-date declines – educational buildings, down 12 percent; healthcare facilities, down 18 percent; and public buildings, down 34 percent. The manufacturing plant category in this year’s January-June period fell 29 percent. In contrast, the commercial categories in this year’s first half climbed three percent with hotels up 28 percent, warehouses up six percent and office buildings up one percent, although stores dropped seven percent.