September Construction Slides 9%

New construction starts fell 9% in September to a seasonally adjusted annual rate of $573.5 billion, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies.

A sharp decline was reported in September for nonbuilding construction, following elevated activity during the previous two months. Reduced contracting was also reported for nonresidential building, while residential building managed to edge up slightly.

Through the first nine months of 2007, total construction on an unadjusted basis came in at $475.6 billion, down 11% from the same period a year ago. If residential building is excluded, new construction starts during the January-September period of 2007 would be up 4% relative to last year.

The September statistics lowered the Dodge Index to 121 (2000=100), compared to a revised 133 for August. Through the first nine months of 2007, the Dodge Index averaged 132, down from a 144 reading for 2006.

Nonbuilding Construction

Nonbuilding construction plunged 27% to $118.8 billion, down from an exceptionally strong August that was boosted by the start of two massive projects a $1.8 billion power plant and a $1.3 billion water filtration plant. If these two projects are excluded, then nonbuilding construction in September would be down just 6%.

Reflecting the comparison to a robust August, the electric utility category in September plummeted 91%. The water supply category dropped 40% from August, although September was still the second highest monthly pace so far this year, helped by the start of a $190-million reservoir purification facility in Colorado. The miscellaneous public works category, which includes site work and outdoor sports stadiums, fell 38% in September. On the positive side, gains were registered in September for river/harbor development, up 2%; highways and bridges, up 5%; and sewers, up 15%.

For the first nine months of 2007, nonbuilding construction climbed 6% compared to last year. Leading the way were water supply systems, up 29%; and sewers, up 14%. Highway and bridge construction is also strengthening in 2007, rising 7% year-to-date.

The miscellaneous public works category was unchanged during the first nine months of this year, while river/harbor development settled back 8%. Electric utility construction during the first nine months of 2007 was down 4%.

Nonresidential Building

Nonresidential building, at $206.9 billion, fell 6%. Most responsible for the decline was a steep 77% pullback for the manufacturing building category, which had been lifted in August by the start of a $3.5-billion facility to process plutonium for use in nuclear power plants. Excluding this huge project, nonresidential building in September would be up 16% and the manufacturing building category would be up 60%.

Three large ethanol plants were started in September, with two located in Minnesota ($133 million and $120 million), and one in Ohio ($130 million). The commercial categories generally strengthened last month.

Hotel construction soared 75% in September from a lackluster August, aided by the start of a $127-million hotel/casino in Alabama. Office construction advanced 22%, supported by the start of a $100-million data center in the state of Washington. Store construction climbed 14%, boosted by the start of a $310-million addition to the Carousel Center Mall in Syracuse, N.Y., and a $97-million shopping center in Los Angeles, Calif. Warehouse construction, down 26%, ran counter in September to the upward trend for the other commercial categories.

The institutional structure types also showed increases. The educational building category climbed 14%, strengthening after sluggish contracting during the previous two months. The second major institutional category, healthcare facilities, climbed 7% in September, and included that start of a large $150-million hospital in Indiana.

The smaller institutional categories showed growth for amusement-related projects, up 22%; public buildings (courthouses and detention facilities), up 12%; and churches, up 5%.

Transportation terminal projects in September dropped 34%. During the first nine months of 2007 nonresidential building increased 3% compared to last year. Manufacturing buildings showed a substantial 33% jump in dollar volume, the result of several very large projects as well as continued strength for ethanol plants.

For the commercial categories, store construction advanced 13%, continuing to show resilience in the face of the housing correction, and office construction rose 7%. Warehouse construction was down 3% year-to-date, and hotels retreated 9% from a 2006 that featured groundbreaking for several huge hotel/casinos. On the institutional side, gains were reported for educational buildings, up 3%; and public buildings, up 25%. Weaker activity was shown by healthcare facilities, down 10%; with additional declines for transportation terminals, down 6%; amusement-related projects, down 12%; and churches, down 13%.

Residential Building

Residential building grew 1% to $247.8 billion, supported by a 29% increase for multifamily housing. The broad trend for multifamily housing during 2007 has been downward, but September included groundbreaking for five multifamily projects, each valued in excess of $100 million, located in South Lake Tahoe, Calif. ($319 million), Louisville, Ky. ($200 million), Miami Beach, Fla. ($160 million), Vail ($157 million) and Stamford, Conn. ($153 million).

At the same time, single family housing weakened further, dropping 6%, and has now fallen in eight of the first nine months of 2007. For the first nine months, residential building was down 24% from a year ago. Single family fell 26% in dollar terms during this time, with large declines across the five major regions the South Central, down 17%; the Northeast, down 20%; the Midwest, down 24%; the West, down 27%; and the South Atlantic, down 32%. Multifamily housing year-to-date dropped 19%, not quite as severe as what was experienced by single family housing.

While declines of 20% or more were reported in such major multifamily markets as Miami, New York City and Washington, D.C., gains were reported in other markets, such as Boston, Chicago and Seattle.

The 11% retreat for U.S. total construction during the first nine months of 2007 was the result of decreased activity across all five major regions, with this pattern by geography the South Central and Midwest, each down 9%; the Northeast, down 10%; the South Atlantic, down 11%; and the West, down 13%.

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