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Homebuilding Leads Improvement in August Construction Starts

Overall construction starts improved by 2 percent from July to August, according to a recent McGraw Hill Construction report. Residential building stayed on the upward track, and nonbuilding construction (public works and electric utilities) rebounded after its loss of momentum in July. At the same time, nonresidential building retreated from its improved July amount, continuing the up-and-down pattern that has defined the 2013 market.

New construction starts in August advanced 2 percent relative to July at a seasonally adjusted annual rate of $490.2 billion, according to a new report from McGraw Hill Construction.

For the first eight months of 2013, total construction starts on an unadjusted basis came in at $329.4 billion, up 1 percent from the same period a year ago. If electric utilities were excluded from the year-to-date statistics, total construction starts in the first eight months of 2013 would be up 10 percent.

"On balance, the construction industry is showing modest growth in 2013, although by major sector there's been divergent behavior," stated Robert A. Murray, vice president of economic affairs for McGraw Hill Construction. "Housing continues to lead the way, with consistent gains reported for both single and multifamily housing."

Residential Construction
Residential building in August increased 4 percent to $214.1 billion (annual rate). Single-family housing grew 2 percent, maintaining the steady growth that's been present during 2013. While the month-to-month increases have been smaller than last year, the consistent gains have enabled the pace for single family housing in August to be 11 percent higher than the start of this year, and 30 percent higher than the average monthly pace reported during 2012. Since May, the 30-year fixed mortgage rate has moved up from 3.5 percent to 4.5 percent, but this increase in the cost of financing has not had much if any negative impact on homebuyer demand and single family construction.

Nonbuilding Construction
Nonbuilding construction, at $127.3 billion (annual rate), climbed 11 percent in August. Highway and bridge construction had a strong month, jumping 30 percent. Large projects that lifted the highway and bridge total in August were the $798 million Horseshoe Project in Dallas TX, involving replacement of bridges over the Trinity River and road upgrades, and the $743 million Bayonne Bridge project in Bayonne NJ, involving raising the bridge roadway from 151 feet above the water to approximately 215 feet. The top five states for new highway and bridge construction starts in August were Texas, New Jersey, New York, California, and Illinois. The miscellaneous public works category, which includes such project types as pipelines and mass transit, increased 6 percent in August.

"Public works has edged up slightly from last year, helped by the start of several very large projects and withstanding, for now, the negative impact of the sequester," Murray said.

Nonresidential Building
Nonresidential building in August dropped 8 percent to $148.9 billion (annual rate), falling back after a 9 percent gain in July. Much of the downturn came from the institutional categories, which fell a combined 16 percent. Healthcare facilities pulled back 44 percent after showing improved activity in July, as construction is being restrained by several factors, including uncertainty related to the implementation of the Affordable Care Act and a greater number of hospital mergers. The commercial categories in August grew a combined 3 percent.

"It's been more problematic to discern this year's trend for nonresidential building - the commercial categories are hesitantly picking up the pace, but the institutional categories are still languishing," Murray said. "A more solid expansion for total construction requires a greater contribution from nonresidential building, which has yet to occur."

Unadjusted Year-to-Date Starts
The 1 percent gain for total construction starts on an unadjusted basis for the first eight months of 2013 was due to varied behavior by the three main construction sectors. Residential building climbed 27 percent year-to-date, with single family housing up 30 percent and multifamily housing up 19 percent. Nonbuilding construction fell 21 percent year-to-date, as a steep 68 percent plunge for electric utilities outweighed a slight 2 percent increase for public works. Nonresidential building was down a modest 3 percent year-to-date, as the result of this pattern by major segment - commercial building, up 10 percent; institutional building, down 9 percent; and manufacturing building, down 14 percent.

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June 18, 2019, 6:38 pm PDT

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