Article reprinted from Western Roofing magazine Sept/Oct 2007.
Construction Activity
July Construction Retreats 11%
by F.W. Dodge
(EditorÕs Note: F.W. Dodge, a business unit of the McGraw-Hill Construction Information Group, has been a leading source of construction information since 1891.)
The value of new construction starts fell 11% in July to a seasonally adjusted annual rate of $588.1 billion, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies. Non-residential building returned to a pace more typical of recent months after an exceptionally strong June, while residential building continued to weaken. On the plus side, public works construction improved in July, helped by strength for the environmental project types. For the first seven months of 2007, total construction on an unadjusted basis was reported at $363.2 billion, down 13% from the same period a year ago. If residential building is excluded, then new construction starts during the January-July period of 2007 would be up 2% compared to last year.
The July statistics produced a reading of 124 for the Dodge Index (2000=100), down from June's 140. The overall level of construction starts had jumped 16% during the previous two months, so July's retreat brings contracting back to a level present earlier in the year. "July's slower activity for non-residential building was expected, since June had been boosted by the start of several massive projects," stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. "The year-to-date figures show that non-residential building, up 1%, is performing fairly well in 2007. For residential building, however, the July report shows that this market continues to lose momentum, and that the correction for homebuilding is turning out to be deeper and more extended than initially believed. For public works, July's gain is consistent with the view that this sector will register moderate growth for 2007 as a whole."
Non-residential building in July dropped 23% to $195.4 billion (annual rate). In June, contracting had surged 27% with the help of five massive projects valued each in excess of $500 million, while the largest non-residential projects in July were two office buildings valued each at $200 million. If June's five massive projects are excluded, then non-residential building in July would be down just 4%. The most substantial decline in July was manufacturing buildings, down 72% from a June that included a $1 billion petroleum refinery expansion and a $600 million automotive plant. The manufacturing category in July did see continued strength for ethanol plants, as three projects with values in the range of $80 million to $130 million reached groundbreaking. Hotel construction also fell sharply in July, down 70% from a June that included $1.2 billion related to the hotel portion of the Fontainebleau hotel/casino in Las Vegas, Nevada. Amusement-related construction dropped 55%, compared to a June that was lifted by $113 million related to the casino portion of the Fontainebleau project. Office construction in July showed a relatively modest 11% decline, compared to a June that included two office projects valued each at $550 million. The drop for new office starts was cushioned by the July groundbreaking for large projects in Charlotte, North Carolina ($200 million), Washington, D.C. ($200 million), and Atlanta, Georgia ($146 million). Other non-residential categories with weaker activity in July were: warehouses, down 18%; churches, down 12%; healthcare facilities, down 11%; and educational buildings, down 3%.
Several non-residential categories did show gains in July. Store construction grew 4%, and on a year-to-date basis registered a 12% increase. Murray noted, "One of the more interesting parts of this year's non-residential market is the continued strength for stores and shopping centers. This project type has typically followed the pattern shown by homebuilding, but so far it has been able to withstand any downward pull from the weak housing sector." The public buildings category advanced 23% in July, boosted by groundbreaking for a $114 million detention facility and a $99 million courthouse, both located in Denver, Colo., plus a $110 million combat support service center in Prince George, Virginia. The transportation terminal category in July jumped 27%, aided by the start of a $109 million rail transit terminal in Brooklyn, New York and an $80 million security screening system at Orlando International Airport in Florida.
Residential building, at $249.5 billion (annual rate), fell 11% in July. This sector on occasion during 2007 appeared to show signs of leveling off, but July's slide indicates that the downward trend is still in progress. Single-family housing in July dropped 7% in dollar volume, due to this behavior by region, Northeast and South Central, each down 1%; Midwest and West, each down 8%; and the South Atlantic, down 11%. Murray stated, "With the mounting turmoil in the credit markets, the near term prospects for single-family housing continue to diminish, as the backlog of unsold homes will remain high for quite some time." Multi-family housing in July plunged 26%, following a 28% increase over the previous two months combined. July included groundbreaking for several large multi-family projects, located in Bellevue, Wash. ($142 million), Charlotte, North Carolina ($130 million), and Norfolk, Virginia ($98 million), but in general the amount of very large multi-family projects is considerably less than what occurred a year ago. Murray noted, "While multi-family housing in 2006 held up well relative to the single-family correction, this year it too is experiencing a sharp correction."
Non-building construction in July advanced 13% to $143.1 billion (annual rate). Leading the way were strong gains for the environmental project types. Sewer and waste disposal systems soared 89%, lifted by several large projects, $1.2 billion related to ongoing radiological waste cleanup in Washington state, a $203 million sewage treatment plant in California, and a $155 million combined sewer overflow pumping station in Michigan. River/harbor development in July climbed 28%, and water supply systems grew 3%. Site work and miscellaneous public works projects in July were also up substantially, rising 38%. The miscellaneous public works segment includes outdoor sports stadiums, and July featured the start of the $750 million football stadium for the Giants and the Jets in East Rutherford, New Jersey. On the transportation side of the public works market, highway construction held steady in July, while bridge construction receded 6%. On a year-to-date basis, highways and bridges have shown growth in 2007, with respective gains of 4% and 25%. The non-building total in July was restrained by a low volume of electric utility construction, which dropped 72% from June's elevated amount.
The decreased volume of total construction during the first seven months of 2007 was the result of this pattern by sector - residential building, down 26%; non-residential building, up 1%; and non-building construction, up 5%. The year-to-date decline for residential building is slightly less severe than what was reported during the spring, although for now it continues to be above 25%. By geography, the first seven months of 2007 showed total construction performing as follows, the South Central, down 9%; the Northeast, down 10%; the Midwest, down 11%; the South Atlantic, down 13%; and the West, down 17%. ¥¥¥