April Construction Holds Steady

At a seasonally adjusted annual rate of $477.0 billion, new construction starts in April were essentially unchanged from March, according to McGraw-Hill Construction Dodge, a division of The McGraw-Hill Companies.

Nonresidential building rebounded after decreased activity during the previous two months, but housing and public works posted moderate declines.

April's data kept the Dodge Index at 144 (1996=100), unchanged from the revised reading for March. The Dodge Index began the year at 151, but then slipped back to 144 in February, and held at this reduced level over the next two months. For 2002 as a whole, the Dodge Index had averaged 151. "It's true that the construction industry lost momentum during the early months of 2003, but so far the retreat can be characterized as a measured pullback," stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction Dodge. "April's stability is a good sign that the slowdown will continue to be mild, helped by an offsetting pattern by sector. Public works is experiencing some dampening from tighter fiscal conditions, but commercial building is now showing more of an up-and-down pattern, following its extended decline of the prior two years. Whether this up-and-down pattern can turn into a more sustained upward trend will depend upon how much strengthening the economy is able to show over the next couple of quarters."

Nonresidential building in April advanced 7 percent to $150.5 billion. Although store construction slipped back 2 percent, April witnessed generally stronger activity for commercial building. Warehouses jumped 26 percent after a very weak March, while office construction increased 22 percent, helped by the start of a $141 million federal office building in San Francisco and a $110 million office building in Chicago. Murray stated, "It's true that the volume of office construction is down substantially from three years ago, but on the positive side the weakening trend has become less severe, and there's now an occasional monthly gain, such as April." Hotel construction was up 11 percent compared to March, boosted by the start of a $155 million hotel/casino project in Las Vegas.

The institutional building categories in April generally showed improvement. School construction edged up 1 percent, while healthcare facilities surged 25 percent from a weak March, buoyed by the start of several segments of a large medical center in Los Angeles, totaling $445 million. The amusement category bounced back 27 percent from a weak March, and transportation terminal work was also up 4 percent. However, reduced contracting was reported for public buildings (courthouses and detention facilities), down 6 percent; and churches, down 11 percent. The manufacturing plant category in April also experienced reduced contracting, slipping 5 percent.

Residential building, at $243.1 billion, was down 3 percent in April. Single family housing showed a 2 percent decline in dollar volume, while the drop for multifamily housing was a larger 9 percent. Although down slightly in April, single family housing remains at a high level, with contracting during the first four months of 2003 up 2 percent over the same period a year ago. Low mortgage rates continue to support the demand for single family homes - the 30-year fixed mortgage rate averaged 5.8 percent in April, and subsequently fell to 5.3 percent during May. Over the past couple of years, multifamily housing has been basically stable, but higher rental vacancy rates are generating some concern about the near term prospects for apartment construction. By geography, residential building in April showed this pattern - the Midwest, unchanged; the South Central, down 2 percent; the South Atlantic, down 3 percent; the Northeast, down 5 percent; and the West, down 5 percent.

Nonbuilding construction in April retreated 3 percent to $83.3 billion. The public works categories registered mostly declines - water supply systems, down 5 percent; river/harbor development, down 9 percent; highways, down 16 percent; and sewers, down 19 percent. Bridge construction, up 26 percent, ran counter to the broader April weakening, helped by the start of a $139 million project in Maryland, an $89 million project in New York, and a $55 million project in Kentucky. Murray noted, "Public works advanced 5 percent in 2002, but the tighter fiscal environment, especially for state governments, is beginning to dampen the volume of construction for this sector during 2003." Electric utility construction in April surged 42 percent, in a departure from its more general downward trend, reflecting the start of a $438 million power plant in Alabama.

During the first four months of 2003, total construction on an unadjusted basis was down 5 percent from a year ago. Residential building advanced 5 percent, but nonresidential building was down 11 percent and nonbuilding construction was down 21 percent. On a regional basis, total construction during the January-April period of 2003 showed this performance compared to 2002 - the West, up 9 percent; the South Central, up 2 percent; the South Atlantic, down 5 percent; the Midwest, down 11 percent; and the Northeast, down 28 percent.

600450 April Construction Holds Steady glassonweb.com

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