New Construction Starts Improve 5 Percent in December

January 27th, 2014 by Editor

New construction starts grew 5 percent in December to a seasonally adjusted annual rate of $554.5 billion, according to McGraw Hill Construction, a division of McGraw Hill Financial.

Although both nonresidential building and housing settled back during the final month of 2013, the nonbuilding construction sector (public works and electric utilities) finished the year on a strong note, according to the McGraw Hill report.

For 2013 as a whole, total construction starts advanced 6 percent to $516.8 billion. This follows the 10-percent gain reported for 2012 (which drew support from a record amount of new electric utility starts that year) and modest 2-percent gains in both 2010 and 2011. If the electric utility category is excluded, total construction starts in 2013 would be up 14 percent, following a 9-percent gain in 2012 and essentially flat activity during 2010 and 2011, according to the report.

The December statistics produced a reading of 117 for the Dodge Index (2000=100), compared to 111 in November. This marked the third highest month for the Dodge Index during 2013, after September’s 118 and October’s 125. During the first eight months of the year, the Dodge Index had hovered within the range of 100 to 108, but then showed a stronger pace of activity during the final four months.

For all of 2013, the Dodge Index averaged 109, up from 103 in 2012.

“The construction industry in 2013 made progress towards establishing a more broad-based recovery, after several years in which the upturn was more limited in scope,” says Robert A. Murray, chief economist for McGraw Hill Construction. “Housing continued to lead the way, strengthening throughout much of 2013, and it was joined by a faster pace for commercial building, albeit from low levels … For 2014, the prospects look good for total construction, with growth anticipated for housing and commercial building, while the institutional building sector at least stabilizes.”

Nonresidential building in December slipped 7 percent to $168.6 billion (annual rate), pulling back for the second month in a row after its elevated pace in October, although its fourth quarter average was still 17 percent above what was reported in the first quarter, according to the report. Several commercial categories in December paused from the improved activity seen earlier in the fall. New office construction dropped 44 percent from November. Similar December declines were seen in the area of hotels, down 42 percent, and warehouses, down 46 percent. Store construction, which was the one commercial category that did not post a November gain, increased 6 percent in December.

The December pause for nonresidential building was cushioned by a sharp 110-percent jump for manufacturing buildings, according to the report.

The institutional building categories in December were mixed. Educational facilities grew 5 percent. Healthcare facilities jumped 30 percent in December from the prior month.
According to the report, the smaller institutional categories generally weakened in December, with public buildings (courthouses and detention facilities) down 32 percent churches, down 44 percent; and amusement-related work down 46 percent. The transportation terminal category retreated a slight 1 percent in December.

For 2013 as a whole, nonresidential building increased 7 percent to $168.6 billion, shifting to an upward direction after the 5-percent decline reported for 2012. The commercial categories overall advanced 16 percent, faster than the 13-percent gain that occurred in 2012. The strongest gain by commercial category was registered by hotels, up 28 percent; followed by warehouses, up 27 percent; office buildings, up 17 percent; and stores, up 1 percent.

The manufacturing building category surged 36 percent for the year, according to the report. The institutional building group decreased 3 percent during 2013, less severe than declines of 9 percent in 2012 and 11 percent in 2011.

Residential building in December dropped 6 percent to $205.3 billion (annual rate), with both sides of the housing market easing back. Single-family housing slipped 3 percent, as recent months have shown more of an up-and-down pattern after the consistently steady gains witnessed earlier in the year, according to the report. When viewed on a quarterly basis, single family housing still registered consistent growth during 2013, with the fourth quarter up 8 percent compared to the first quarter.

Multifamily housing in December retreated 13 percent after November’s increase of the same magnitude. The 2013 amount for residential building was $205.5 billion, up 24 percent, and close to the 31-percent gain reported for 2012. Single-family housing climbed 26 percent in dollar terms, similar to the prior year’s 29-percent hike.

Multifamily housing advanced 16 percent in 2013, according to the report.

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