May Construction Holds Steady Nationwide

At a seasonally adjusted annual rate of $557.8 billion, new construction starts in May were essentially unchanged from April, according to McGraw-Hill Construction, a division of The McGraw-Hill Cos.

Nonresidential building in May registered a particularly strong performance, led by the start of several large manufacturing plants. At the same time, residential building continued to show a loss of momentum, and the nonbuilding construction sector retreated after April’s elevated activity. During the first five months of 2008, total construction on an unadjusted basis was reported at $228.3 billion, down 14% from the same period a year ago.

If residential building is excluded from the year-to-date comparison, new construction starts in the first five months of 2008 increased 7%.

The May statistics produced a reading of 118 for the Dodge Index (2000=100), the same as April’s revised level although 11% below the full-year average for 2007 at 133.

Nonresidential Building

Nonresidential building in May advanced 26% to $264.7 billion. The manufacturing building category soared 531%, due largely to the start of a massive $3.8-billion oil refinery expansion in Indiana. If this project is excluded, the manufacturing building category would be up 55% in May while the nonresidential total would be up 4%.

Aside from the large oil refinery project, the manufacturing building category featured the start of other major projects in May, including a $350-million cement plant in Arkansas, a $155-million upgrade to a semiconductor plant in Massachusetts, and a $149-million synthetic fiber plant in South Carolina.

On the institutional side of the nonresidential market, the educational building category increased 14% in May, aided by a $240-million medical research center in Cambridge, Mass., and a $95-million high school in Monroe, N.J. Health care facilities in May grew 8%, topping the strong volume reported in April. A number of large hospital projects reached groundbreaking in May, located in Chicago; Beachwood, Ohio; Memphis; Wheat Ridge, Colo.; and Cleveland.

Church construction in May advanced 21% although its level of construction remains lackluster compared to mid-decade, and modest growth was reported for dormitories and public buildings.

The amusement category in May retreated 25% from April, which was boosted by a $400-million convention center expansion in Philadelphia. May did include the start of one large convention center project—the $275-million expansion of the Indiana Convention Center in Indianapolis.

Transportation terminal work, sliding 17%, also retreated in May. The commercial categories in May had a mixed performance. Hotel construction bounced back from a weak April, climbing 26%. Large hotel projects that reached groundbreaking included two hotel/casino additions, located in Las Vegas and Airway Heights, Wash.

Store construction in May increased 8%, marking a brief departure from its recent downward trend, as a $100-million shopping center renovation was started in Santa Monica, Calif. Modest gains in May were reported for garages and warehouses. However, the office-building category dropped 21% in May despite the start of three large office projects in Washington, D.C., valued at $82 million, $73 million and $51 million, respectively.

Residential Building

Residential building, at $174.4 billion, fell 5% in May. Single-family housing continues to recede, slipping 2% in May, and since early 2006, the extended single-family correction has shown weaker activity reported in all but three months.

By region, single-family housing in May revealed this behavior—declines in the West (down 6%), the South Central (down 4%), the Northeast (down 2%), and the South Atlantic (down 1%), while the Midwest ran counter with a 4% gain.

Multifamily housing in May descended 13%, resuming its retreat after a brief upturn in April. There were several large multifamily projects that reached groundbreaking in May, located in Atlanta, Austin, Texas, Philadelphia, San Francisco, and Portland Ore. However, the number of large multifamily project reaching the construction start stage is down considerably from last year.

Nonbuilding Construction

Nonbuilding construction in May dropped 27% to $118.7 billion, following the 29% surge reported for April. The electric utility category, which can be volatile on a month-to-month basis, plunged 84% from an April that included the start of a $2.9-billion coal-fired power plant in Illinois.

May did include the start of two large wind power projects, located in Michigan and Pennsylvania. On the public works side, water supply systems dropped 46%, also falling sharply from an April boosted by a huge project, in this case, a $1.3-billion water treatment plant in New York. The water supply category in May did see two large water treatment plants reach the construction start stage, in California and Texas.

May also saw moderate contracting declines for sewers, mass transit and site work. On the plus side, river/harbor development work grew 17% in May while gains were reported for both highways and bridges. Large bridge projects that started in May were located in Connecticut and Texas.

The 14% drop for total construction in the January-May period of 2008, compared to last year, reflected this pattern by sector—residential building, down 40%; nonbuilding construction, down 2%; and nonresidential building, up 13%. The nonresidential building sector is being lifted in 2008 by two massive refinery projects—the $3.8-billion refinery expansion in Indiana entered as a May start and a $7-billion refinery expansion in Texas entered as a January start.

Excluding these two refinery projects, nonresidential building in the first five months of 2008 would show a modest 1% gain.

By region, total construction in the first five months of 2008 revealed double-digit declines in three regions—the South Atlantic, down 27%; the West, down 23%; and the Midwest, down 12%. The South Central, down 1%, was essentially steady year-to-date, while the Northeast registered a 7% increase.

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