March Construction Activity Retreats 1 percent

Date: 6 May 2003

New construction starts in March slipped 1 percent to a seasonally adjusted annual rate of $475.2 billion, it was reported by McGraw-Hill Construction Dodge, a division of The McGraw-Hill Companies.

Both nonresidential building and housing fell slightly, while nonbuilding construction made a partial rebound from a weak February.

The construction start data for March produced a 143 reading for the Dodge Index (1996=100), compared to a revised 145 for February and 150 for January. Accordingly, the recent trend for the Dodge Index has been downward, with the first quarter of 2003 averaging 3 percent less than the previous quarter. "Last year the construction industry leveled off, and the early results for 2003 are now pointing towards a mild loss of momentum," stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction Dodge. "Single family housing has held up quite well, thanks to low mortgage rates, but other construction sectors have been dampened by the lackluster economy, the diminished fiscal health of the federal and state governments, and uncertainty related to the buildup towards war against Iraq. The quick end to hostilities has lifted some of the uncertainty, but it may take some time before the economy strengthens in a sustained manner, and it will be even longer before the federal and state governments see improvement in their fiscal positions. In this environment, the moderate slowdown experienced by construction during the first quarter provides a good indication of how the year as a whole will play out."

Nonresidential building in March dropped 1 percent to $140.8 billion. After registering growth in February, the commercial categories slipped back once again in March - stores, down 12 percent; hotels, down 16 percent; offices, down 24 percent; and warehouses, down 36 percent. "The commercial categories in recent months have shown an up-and-down pattern, so the March retreat following February's upswing is consistent with that trend," stated Murray. "After the extended declines during 2001 and 2002, the commercial categories now appear to be hovering at a decreased volume, which is likely to persist for at least a few more quarters." Although down from its February pace, hotel construction in March did include the start of a $143 million hotel/casino project in Las Vegas. The long-depressed manufacturing plant category was able to report a 10 percent gain in March.

The institutional side of the nonresidential market offset much of the March weakness for commercial building. The educational building category grew 5 percent, supported by the start of a $120 million bioengineering laboratory building at the University of California, Berkeley; plus the start of an $88 million library in Jacksonville FL. Healthcare facilities in March climbed 23 percent, while the public building category jumped 47 percent with the push coming from the start of a $113 million federal prison project in Arizona. Transportation terminal work was up 96 percent, boosted by the start of a $106 million terminal renovation at Chicago's O'Hare Airport. Two institutional categories that lost momentum in March were churches, down 1 percent; and amusement-related projects, down 7 percent.

Residential building, at $247.5 billion, was down 2 percent in March. The slight drop was the result of a 3 percent decrease for single family housing combined with a 2 percent gain for multifamily housing. The level for single family housing was still very healthy, matching the average monthly pace reported in 2002. "Single family housing remains very strong for now, as the benefits of low mortgage rates continue to outweigh the negatives of sluggish employment and weak consumer confidence," Murray noted. The 30-year fixed mortgage rate averaged 5.7 percent during March, compared to 7.1 percent a year ago. By geography, residential building in March performed as follows - the South Central, up 6 percent; the Northeast, down 1 percent; the South Atlantic, down 3 percent; the West, down 4 percent; and the Midwest, down 5 percent.

Nonbuilding construction in March increased 3 percent to $87.0 billion. The volume of new highway starts was especially strong, rising 26 percent after the prior month's depressed amount. Congress finalized fiscal 2003 appropriations in early February, keeping funding for the federal-aid highway program within 1 percent of the previous year, and this apparently helped highway construction to rebound in March. Other public works categories showing March gains were sewers, up 18 percent; and river/harbor development work, up 33 percent. On the negative side, water supply systems dropped 10 percent, and bridges were down 37 percent from a robust February that included the start of a very large bridge project in the state of Washington. Electric utility construction in March fell 8 percent, resuming this category's descent after a brief upturn in February.

During the first three months of 2003, total construction on an unadjusted basis was 7 percent below the same period in 2002. Pulling total construction downward were declines of 15 percent and 22 percent for nonresidential building and nonbuilding construction, respectively, outweighing a 4 percent increase for residential building. On a regional basis, total construction in the January-March period was the following: the West, up 6 percent; the South Central, down 3 percent; the South Atlantic, down 8 percent; the Midwest, down 12 percent; and the Northeast, down 27 percent.

600450 March Construction Activity Retreats 1 percent glassonweb.com

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