February Construction Unchanged from Prior Month

NEW YORK, March 20, 2014 /PRNewswire/ -- At a seasonally adjusted annual rate of $486.7 billion, new construction starts in February were essentially the same as January's amount, according to McGraw Hill Construction, a division of McGraw Hill Financial.  After the strong finish to last year, the construction start statistics have shown lackluster activity during the first two months of 2014.  The flat pace for total construction starts in February was due to a mixed performance by major sector – less nonresidential building, but more housing and public works.  For the first two months of 2014, total construction starts on an unadjusted basis were reported at $66.7 billion, down 3% from the same period a year ago.

February's data kept the Dodge Index at 103 (2000=100), remaining below the full year 2013 average for the Index at 111.  "While construction activity has generally trended upward over the past two years, the monthly pattern has frequently been hesitant, and early 2014 has turned out to be one of those hesitant periods," stated Robert A. Murray, chief economist for McGraw Hill Construction.  "To some extent, the harsh winter weather has played a role in dampening construction activity, particularly as it relates to single family housing. At the same time, multifamily housing in early 2014 has been able to strengthen further.  For nonresidential building, the upturn so far has been much more gradual and subject to setback, such as what took place in this year's first two months.  Still, the commercial building sector is seeing rising occupancies and rents, and the improved fiscal health of states and more financing from bond measures should help the institutional building sector stabilize, which would enable nonresidential building to soon regain upward momentum.  For nonbuilding construction, the prospects for renewed growth in 2014 are more limited, given the comparison to 2013 which included the start of several massive public works projects, in combination with the continued retrenchment for new electric utility starts underway after the record high reached back in 2012."

Nonresidential building in February dropped 9% to $141.9 billion (annual rate), sliding back for the third month in a row after the heightened volume registered last fall.  The volatile manufacturing plant category, plunging 75%, was responsible for much of February's nonresidential building decline.  If manufacturing plant construction is excluded, then nonresidential building in February would be up 4%. January's manufacturing plant amount had been boosted by the start of a $1.2 billion propane dehydrogenation facility in Texas; in contrast, the largest manufacturing project reported as a February start was a $143 million medical products plant, also in Texas.  Commercial building in total climbed 10% in February, helped by gains for offices, warehouses, and hotels.  Office construction advanced 17%, helped by groundbreaking for several large office buildings, located in Albany NY ($103 million), San Antonio TX ($92 million), and Waltham MA ($50 million). Warehouse construction jumped 43%, lifted by the start of a $79 million Nordstrom fulfillment center in Elizabethtown PA. Hotels rose a moderate 8%, aided by the start of a $40 million Hyatt hotel in Denver CO. Store construction, receding 1%, was not able to contribute to February's commercial building gain.

The institutional categories on balance in February held steady with the prior month, due to mixed behavior by project type.  Educational facilities retreated 9%, although the latest month did include the start of a $136 million high school renovation project in Long Beach CA, an $85 million research lab in Maplewood MN, and a $68 million high school in Cambridge MA. Healthcare facilities fell 5% in February, despite the start of a $118 million ambulatory care clinic in Minneapolis MN. The smaller institutional categories in February were led by an 86% jump for miscellaneous nonresidential buildings, reflecting the start of a $146 million renovation project at the New York Aquarium in Brooklyn NY.  Gains were also reported for churches and public buildings, each up 12% from weak January activity, although amusement-related work slipped 5%.

Residential building, at $213.8 billion (annual rate), increased 3% in February, as 17% growth for multifamily housing outweighed a slight 1% drop for single family housing.  The February gain for multifamily housing was led by three large projects in the New York City area, with two in Manhattan ($425 million and $322 million), and one in Brooklyn ($240 million).  Additional support came from the start of a $198 million apartment building in San Francisco CA.  During the first two months of 2014, the metropolitan area with the largest dollar amount of new multifamily starts was New York NY, followed by Washington DC, Miami FL, San Francisco CA, and Denver CO.  The slight 1% decline for single family housing in February, compared to a steeper 4% drop in January, suggests that single family housing may now be starting to stabilize after showing decreasing activity during the three previous months.  In February, the single family declines by region were shown by the Northeast, down 8%; the Midwest, down 2%; and the South Atlantic and West, each down 1%; while the South Central managed to edge up 1%.  Murray noted, "The most recent weakness for single family housing can be attributed to tough weather conditions in parts of the U.S., and it's expected that single family housing will regain its previous upward track very soon. Still, the demand for single family housing arising from potential first time homebuyers may be restrained going forward, due to such factors as continued tight bank lending standards for mortgages and the high student loan debt faced by many in this group."

Nonbuilding construction increased 8% in February to $130.9 billion (annual rate), making a partial rebound after the steep 33% decline in January.  The public works sector overall improved 12%, due mostly to a 146% surge for the miscellaneous public works category, which includes such diverse project types as mass transit and pipelines.  Large mass transit projects entered as February starts were the $1.3 billion Crenshaw/LAX Transit Corridor Project in Los Angeles CA, plus two highway guideway projects in Honolulu HI valued at $444 million and $362 million respectively.  A $345 million oil pipeline in Michigan was also entered as a February start.  Water supply construction in February registered a moderate 6% gain, helped by the start of a $78 million water treatment plant in Lake Forest CA.  The other public works categories fell back in February, with river/harbor development down 10%; bridge construction down 14%, highways down 21%, and sewers down 39%.  Electric utility construction in February dropped 25%, although the latest month did include the start of two large wind power projects located in New Mexico ($450 million) and Nebraska ($145 million).

The 3% decline for total construction starts on an unadjusted basis during the first two months of 2014, compared to 2013, was the result of a varied performance by major sector – nonresidential building, down 12%; residential building, up 5%; and nonbuilding construction, down 2%.  By geography, total construction for the January-February period of 2014 revealed this behavior compared to last year – the South Atlantic, down 8%; the South Central, down 7%; the Midwest, down 4%; the West, unchanged; and the Northeast, up 8%.

Useful perspective is also obtained by looking at twelve-month moving totals, in this case the twelve months ending February 2014 versus the twelve months ending February 2013, which lessens the volatility inherent in comparisons of just two months.  On this basis, total construction starts advanced 6%, as the result of the following performance by sector – nonresidential building, up 5%; residential building, up 20%; and nonbuilding construction, down 10%.  By geography, the twelve months ending February 2014 showed this pattern for total construction compared to the previous twelve months – the Northeast, up 14%; the West and Midwest, each up 9%; the South Central, up 3%; and the South Atlantic, down 5%.

February 2014 Construction Starts

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February 2014 Construction Starts

Monthly Summary of Construction Starts
Prepared by McGraw Hill Construction Research & Analytics

The Dodge Index 
(Year 2000=100, Seasonally Adjusted)
February 2014...103
January 2014...103

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SOURCE McGraw Hill Construction