August Construction in U.S. Advances 6%

At a seasonally adjusted annual rate of $624.3 billion, new construction starts in August climbed 6%, as reported by McGraw-Hill Construction. The increase showed construction starts making a partial rebound after July’s 11% decline, helped by strengthening for nonresidential building and nonbuilding construction, which includes public works and electric utilities.

At the same time, the downward trend for residential building continued. Through the first eight months of 2007, total construction on an unadjusted basis came in at $424.9 billion, down 11% from the corresponding period of 2006. Excluding residential building, new construction starts in this year’s January-August period were up 5% over last year.

The August data lifted the Dodge Index to 132 (2000=100), compared to a revised 125 for July. For all of 2006, the Dodge Index averaged 144.

Nonresidential Building

Nonresidential building in August jumped 16% to $222.1 billion (annual rate). Much of the increase reflected a surge for manufacturing plant construction, which climbed an exceptional 508% from a weak July. The August manufacturing amount was boosted by the start of a $3.5-billion mixed oxide fuel fabrication facility in South Carolina, which will be used to process surplus weapons grade plutonium for use in commercial nuclear power reactors. Warehouse construction also had a strong August, growing 54%, with the push coming from the start of a $110-million industrial center in Texas. Hotel construction advanced 20% in August, regaining some of the strength that had been reported earlier in the year. Three of the smaller institutional categories showed improvement in August amusement related projects, up 11%; transportation terminals, up 7%; and churches, also up 7%. The largest institutional category, educational buildings, held steady in August compared to the previous month. Large educational building projects that reached groundbreaking in August were located in California ($104 million), New York ($74 million) and Virginia ($65 million).

Several nonresidential categories that had shown strength earlier in the year witnessed declines in August. Store construction for the month slipped 4%, while during the first eight months of the year this category was still up 11%. Offices dropped 28% after a strong July, yet maintained a year to date gain of 9%. The public buildings category, that includes courthouses and detention facilities, fell 29%, but on a year-to-date basis advanced 19%.

Construction starts for health-care facilities retreated 19% in August, and in this case it was consistent with the general weakening for this structure type, down 9% for the first eight months of 2007. The health care facilities category in August showed groundbreaking for several large hospitals, located in Illinois ($162 million), Idaho ($84 million) and California ($65 million).

Nonbuilding Construction

Nonbuilding construction, at $160.2 billion (annual rate), grew 12% in August. A major portion of the increase came from the often volatile electric utility category, which jumped 737% in August from a weak July.

Aiding the August electric utility volume were the start of two large power plant projects, located in Texas ($1.8 billion) and Nevada ($400 million). On a year to date basis, electric utility construction in the first eight months of 2007 was up a slight 1% from 2006. The August nonbuilding total was also helped by a 116% rise for water supply projects, boosted by the start of a $1.3 billion water treatment plant in New York.

For the other environmental categories, river/harbor development edged up 1%, and sewers and waste disposal projects dropped 59% from a strong July. Highway construction, the largest nonbuilding category by dollar volume, settled back 3% in August while bridge projects held steady.

The miscellaneous public works category in August retreated 6% from an elevated July, although August did include the start of several noteworthy projects an $800-million petroleum pipeline located in Texas, Louisiana and Mississippi; a $289-million football stadium at the University of Minnesota in Minneapolis, and a $180-million natural gas pipeline in Massachusetts.

Residential Building

Residential building in August dropped 6% to $242.0 billion (annual rate), continuing the weakening trend that has been present so far in 2007. Single family housing fell an additional 7% in dollar terms, and on a year to date basis was down 26%. By region, the year to date declines for single family housing have been most severe in the South Atlantic, down 32%; followed by the West, down 27%; the Midwest, down 24%, the Northeast, down 21%; and the South Central, down 16%.

Multifamily housing in August edged up a slight 1%, representing a brief pause in the decreased activity reported this year. August did include the start of several large apartment projects, in such locales as Washington, D.C. ($100 million) and suburban Boston ($80 million), but the number of large condominium projects is down considerably from last year.

The lower amount of total construction starts during the first eight months of 2007 was the result of this performance by major sector residential building, down 25%; nonresidential building, up 3%; and nonbuilding construction, up 8%.

By geography, total construction in the January-August period of 2007 showed this pattern relative to last year the West, down 15%; the Midwest, down 12%; the South Atlantic, down 10%; the Northeast, down 9%; and the South Central, down 6%.

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