McGraw-Hill Says New Construction Fell 10 Percent in July, Still Up for the Year

New construction starts fell 10% in July to a seasonally adjusted annual rate of $401.2 billion, according to McGraw-Hill Construction. After showing improvement during the spring, McGraw-Hill Construction said the pace of construction starts retreated over the past three months, with July coming in at the lower end of the recent range of activity. According to its data, nonbuilding construction (comprised of public works and electric utilities), fell sharply in July, while both nonresidential building and housing lost some of their earlier momentum. For the first seven months of 2012, the volume of total construction starts on an unadjusted basis was reported at $262.9 billion, holding on to a 4% gain compared to the same period a year ago.

The July statistics lowered the Dodge Index to 85 (2000=100), compared to a 94 for June. The current year began on a weak note, with the Dodge Index slipping to 84 in February, to be followed by elevated index readings in March (103) and April (114), which reflected in part the boost coming from the start of two massive nuclear power projects located in Georgia and South Carolina. Activity then settled back in May and June, with index readings of 95 and 94 respectively, which remained slightly above the 92 average for the Dodge Index for all of 2011. July brings the pace of total construction starts back to the lackluster activity reported at the outset of 2012.

In a press release announcing the July data, Robert Murray, V.P. of economic affairs for McGraw-Hill Construction, said, “The construction industry is still struggling to gain upward traction, as construction starts continue to exhibit an up-and-down pattern. The public works and institutional building sectors are still being adversely affected by the tough fiscal climate facing the federal, state and local levels of government.

“Commercial building, which seemed to be in the very early stages of recovery, is seeing its faint upturn become more tenuous with the sluggish employment picture. The upward potential for housing in the near term is also being dampened by the persistently hesitant U.S. economy. Overall, the construction industry remains stuck for now in an extended process of turning the corner.”

Nonbuilding construction in July dropped 18% to $109.1 billion (annual rate). The electric utility category plunged 36%, falling for the third month in a row after the exceptional activity that was reported during March and April. July did include the start of a few noteworthy projects, such as a $535 million gas-fired power plant and a $75 million biomass plant, both in Texas, but the July pace of new electric utility starts was down 84% from this category’s average for the first six months of 2012. The public works sector in July fell 16%, sliding back after a brief upturn in June. The “other public works category,” comprised of such diverse project types as site work, mass transit, pipelines, and outdoor sports stadiums, plummeted 61% from June. The June construction date had been lifted by $1 billion estimated for work on a new football stadium for the San Francisco 49ers in Santa Clara Calif. The largest “other public works” project reported as a July start was a $75 million stadium expansion for Kansas State University in Manhattan, Kan.

Nonresidential building. At $138.1 billion (annual rate), this category decreased 7% in July, with weaker activity reported for the majority of the institutional categories. Educational facilities in July dropped 12%, after showing some improvement during the previous two months. July included a few noteworthy education-related projects, led by a $93 million high school in Mountain House Calif., and a $65 million science building at Ohio State University. However, these projects were not enough to avert a decline for the educational building category in July. Healthcare construction in July dropped 10%, even with the start of a $156 million replacement hospital at Fort Irwin Calif., and a $113 million hospital expansion in Silver Spring, Md. Also showing declines in July were amusement-related construction, down 13%; and churches, down 10%.