The value of new construction starts fell 13% in January to a seasonally adjusted annual rate of $485.0 billion, according to McGraw Hill Construction, a division of McGraw Hill Financial. The downturn followed a healthy performance in December, which was the third highest month for total construction starts during 2013. January’s retreat encompassed all three main construction sectors, with moderate declines reported for nonresidential building and housing, as well as a more substantial loss of momentum for nonbuilding construction (public works and electric utilities) after a particularly robust December. On an unadjusted basis, total construction starts in January came in at $34.1 billion, down 5% from the same month a year ago.
The January statistics lowered the Dodge Index to 103 (2000=100), compared to a revised 118 for December and below the average Index reading of 110 for all of 2013. “The year 2014 began slowly, due to behavior specific to each of the three main construction sectors,” stated Robert A. Murray, chief economist for McGraw Hill Construction. “Nonresidential building in 2013 advanced 7%, but the progress was occasionally hesitant, including sluggish activity at the end of last year that carried over into January. At the same time, the prospects for continued growth for nonresidential building during 2014 are generally positive, helped by receding vacancies for commercial properties and some improvement in the fiscal health of state governments. Residential building in 2013 climbed 24%, but towards the end of last year growth began to decelerate as mortgage lending to first-time homebuyers remained stringent. The January slowdown for housing was due in part to tough winter weather conditions, yet the deceleration in recent months bears watching going forward. Nonbuilding construction in 2013 dropped 12%, as the steep pullback by electric utilities outweighed surprising growth for public works. Last year’s nonbuilding performance was also quite volatile on a month-to-month basis, including strong activity in December that’s now been followed by a sharp reduction in January. With 2014 not likely to see the same volume of very large public works projects reach the construction start stage, nonbuilding construction is expected to register another decline this year, and January’s downturn is part of that broader trend.”
Nonresidential building in January dropped 6% to $157.3 billion (annual rate), and was down 7% from last year’s average monthly pace. The commercial building sector in January fell 13%, with declines from the prior month shown by hotels, down 43%; and warehouses, down 3%. Hotels and warehouses posted strong percentage growth during 2013, with each rising 29%, and the sluggish activity in January is viewed as a pause in what’s expected to be continued growth for both structure types during 2014. Cushioning the January decline for the commercial building sector was a 21% increase for office construction, helped by groundbreaking for such projects as a $125 million corporate headquarters in Houston TX, a $66 million office park in Mountain View CA, and a $44 million office building in Raleigh NC. Store construction in January improved 4%, reflecting the start of a $30 million shopping mall in Lakeland FL and a $25 million department store in Las Vegas NV. The manufacturing plant category had a strong January, jumping 44%, due to the impact of two very large projects – a $1.2 billion propane dehydrogenation facility in Texas and a $450 million oil refinery expansion in North Dakota.
The institutional building sector in January decreased 12%, as the recent signs of stability after a lengthy five-year decline continue to be tenuous. The educational building category receded 3%, although the month did include the start of several large university-related projects – a $155 million renovation to an academic building at Princeton University in Princeton NJ, a $100 million business school at Baylor University in Waco TX, and a $92 million science and laboratory facility at the University of Tennessee in Knoxville TN. Healthcare facilities in January dropped 17%, as this structure type continues to show an up-and-down pattern on a monthly basis, keeping renewed growth in a sustained manner on hold. The smaller institutional categories in January were mixed, with reduced activity reported for transportation terminals (down 31%) and amusement-related work (down 20%), while public buildings (up 6%) and religious buildings (up 58%) showed improvement from depressed levels in December. The decline for the amusement category was relative to a very strong December, which included the start of the $763 million Vikings Multipurpose Stadium in Minneapolis MN. Large project support for the amusement category was also present in January, coming from $90 million estimated for a new facility at the Disney Animal Kingdom in Lake Buena Vista FL, as part of a larger $500 million project at that theme park.
Residential building, at $204.7 billion (annual rate), slipped 2% in January. The retreat came as the result of a 6% decline for single family housing, which has now settled back for three months in a row. The January single family decline was widespread geographically, with this pattern for the five major regions relative to December – the South Central, down 13%; the Northeast and West, each down 6%; the Midwest, down 3%; and the South Atlantic, down 2%. Murray noted, “Harsh weather conditions in January played some role in the sluggish single family performance, in combination with the recent pickup in mortgage rates and the tight lending environment as it relates to first-time homebuyers. Still, it’s expected that single family construction should soon regain upward momentum, given the very low inventory of new homes for sale and what’s anticipated to be a strengthening economy and jobs picture.”
Multifamily housing in January grew 12%, staying on the broad upward track that began back in 2010. Large projects that supported the January increase were led by a $400 million condominium and apartment building in New York NY, as this metropolitan area continues to see very large multifamily projects reach groundbreaking. Other large multifamily projects reported as January starts were located in Washington DC ($90 million), Miami FL ($69 million), Minneapolis MN ($54 million), and Dallas TX ($50 million).
Nonbuilding construction in January plunged 32% to $123.0 billion (annual rate), following its 40% surge in December. New electric utility work dropped 61% from the elevated pace witnessed in December, returning to the downward path that was present for much of last year. Although January did include the start of an $800 million natural gas-fired power plant in Pennsylvania, this was not enough to avert the category’s steep drop for the month. The public works sector overall in January was down 25%, with declines across most of the project types. While January did include the start of a $153 million highway paving project in Texas and the $126 million deck replacement of the Pulaski Skyway in New Jersey, highway and bridge construction for the month fell 35%. Other January declines were reported for river/harbor development, down 26%; miscellaneous public works (site work, mass transit, and pipelines) down 13%; and water supply systems, down 5%. Sewer construction was the one public works category to register an increase in January, rising 21%, with the lift coming from such projects as a $173 million sewer tunnel in Hawaii.
The 5% decline for total construction starts on an unadjusted basis for January 2014 relative to January 2013 was due to this performance by sector – nonresidential building, down 6%; residential building, up 8%; and nonbuilding construction, down 19%. By geography, total construction starts for January 2014 relative to January 2013 showed declines in four of the five major regions – the West, down 15%; the South Atlantic, down 9%; the South Central, down 5%; and the Midwest, down 3%. The Northeast was the only region to register a year-over-year gain for January 2014, advancing 15%.
Useful perspective can be obtained by looking at twelve-month moving totals, in this case the twelve months ending January 2014 versus the twelve months ending January 2013, which lessens the volatility present in one-month comparisons. For the twelve months ending January 2014, total construction starts were up 5%, due to this pattern by sector – nonresidential building, up 6%; residential building, up 22%; and nonbuilding construction, down 13%. By geography, the twelve months ending January 2014 showed the following behavior for total construction starts – the Northeast, up 16%; the Midwest and West, each up 9%; the South Central, up 2%; and the South Atlantic, down 5%.