Press Release
November Construction Retreats 11 Percent
New York, N.Y. – December 19, 2013 – At a seasonally adjusted annual rate of $524.8 billion, new construction starts in November fell 11% from the previous month, according to McGraw Hill Construction, a division of McGraw Hill Financial. The downturn followed heightened activity in October, which showed the strongest pace for construction starts so far during 2013. Both nonresidential building and nonbuilding construction pulled back from their elevated October amounts. At the same time, residential building showed modest growth in November, continuing the steady upward trend that’s been present during most of 2013. For the first eleven months of 2013, total construction starts on an unadjusted basis came in at $475.3 billion, up 6% from the same period a year ago. If the volatile electric utility category is excluded from the year-to-date statistics, total construction starts for the first eleven months of 2013 would be up 14%.
November’s data produced a reading of 111 for the Dodge Index (2000=100), compared to 125 in October and 118 in September. For the first eight months of 2013 the Dodge Index had averaged 105, as it hovered within the fairly narrow range of 100 to 108. While November showed a decline from the prior two months, the level of activity was still above what had been reported earlier in the year. “The monthly construction start statistics will often show an up-and-down pattern, given the amount of large projects that are included in any given month,” stated Robert A. Murray, chief economist for McGraw Hill Construction. “Although November witnessed a decline from the heightened activity in September and October, the construction start statistics when viewed in the context of 2013 as a whole are still trending upward. Housing during 2013 has strengthened on a consistent basis. Nonresidential building is gaining momentum, aided by improving activity for commercial building from low levels while the institutional building sector stabilizes after a lengthy decline. Nonbuilding construction is weakening due to a sharply reduced amount of new electric utility starts, but its public works component has shown surprising resilience this year. For 2014, the upward trend for total construction starts is expected to continue. One plus for construction and the economy going forward is the recent budget pact approved by the U.S. Congress, since it removes the uncertainty that would have come with the threat of another government shutdown in early 2014.”
Nonresidential building in November dropped 17% to $179.3 billion (annual rate), following its elevated activity in October. The manufacturing plant category plunged 86%, after being lifted in October by the start of three massive projects each valued in excess of $1 billion. In contrast, the largest manufacturing-related projects reported as November starts were a $94 million biotechnology plant in North Carolina and a $75 million pipe and tube plant in Texas. Excluding the manufacturing category, nonresidential building in November would have been up 16%, supported by the month’s 31% jump for the commercial building group. Hotel construction in November surged 212%, boosted by $476 million for the hotel portion of the $700 million 67-story Korean Air Hotel in Los Angeles CA. Also reported as a November start was $191 million for the hotel portion of a $300 million hotel resort and casino in Durant OK. Office construction in November climbed 26%, maintaining the growing momentum that’s been present during the second half of 2013. Large office projects reported as November starts were the $336 million Transbay office tower in San Francisco CA, the $265 million State Farm office complex in Tempe AZ, and $160 million for the office portion of the $700 million Korean Air Hotel project in Los Angeles CA. Warehouse construction was particularly strong in November, advancing 82% with the help of such projects as a $90 million distribution facility in Union OH and an $85 million Amazon distribution center in Kenosha WI. Store construction was the one commercial category to decline in November, dropping 23% with the largest project being a $45 million outlet mall in Tejon Ranch CA.
The institutional building group in November slipped 3%. Healthcare facilities fell 41%, sliding back for the second month in a row after a particularly strong amount in September. The largest healthcare facility projects reported as November starts were a $136 million hospital in Chicago IL and a $90 million hospital expansion in Long Island City NY. The educational building category in November decreased 8% from its improved pace in October, with the largest education-related projects being a $125 million museum expansion in Potomac MD and a $100 million research facility in Maywood IL. The smaller institutional categories showed strong percentage gains in November after a generally weak October. Amusement-related construction advanced 84%, led by the start of the $763 million Vikings Multipurpose Stadium in Minneapolis MN as well as $109 million for the casino portion of the $300 million hotel resort and casino in Durant OK. Transportation terminal construction in November rose 13%, supported by $125 million for the redevelopment of the George Washington Bridge Bus Station in New York NY. The public buildings and religious categories in November showed large percentage gains from very low October levels, rising 21% and 33% respectively.
During the first eleven months of 2013, nonresidential building climbed 8% relative to the same period a year ago. The commercial categories as a whole were up 16%, featuring these across-the-board gains – warehouses, up 32%; hotels, up 24%; office buildings, up 23%; and stores, up 1%. The 2013 increase for stores was restrained by the comparison to 2012 that included the $400 million renovation to Macy’s flagship department store in New York NY. The manufacturing building category year-to-date climbed 49%, helped especially by the three large manufacturing projects reported as October starts. The institutional building group year-to-date was down 2%, with the two largest institutional categories performing as follows – educational buildings, unchanged from the previous year; and healthcare facilities, down 4%. The smaller institutional categories showed this year-to-date pattern – amusement-related projects, up 24%; transportation terminals, up 5%; religious buildings, down 8%; and public buildings, down 23%.
Nonbuilding construction, at $127.1 billion (annual rate), dropped 21% in November. The public works portion of nonbuilding construction fell 23%, with the largest decline registered by bridge construction, down 73%. The bridge category in October had been boosted by $2.8 billion for the start of structural work on the Tappan Zee Bridge replacement project across the Hudson River in the Tarrytown NY area. In November, the largest bridge project reported as a construction start was a $125 million bridge reconstruction project in Fall River MA. Additional public works categories with November declines were highway construction, down 3%; and sewers, down 32%. On the plus side, both river/harbor development and water supply construction showed improvement from a lackluster October, advancing 47% and 3% respectively. The miscellaneous public works category, which includes such diverse project types as pipelines and mass transit, grew 8% in November with the help of the $300 million Keystone Pipeline Gulf Coast Expansion in Texas. Electric utility construction in November edged up 1%, staying basically unchanged from its sharply reduced amount in October. The largest electric utility project reported as a November start was a $400 million wind farm in the state of Washington.
For the January-November period of 2013, nonbuilding construction was down 15% from a year ago. After reaching a record high in current dollar terms back in 2012, the volume of new electric utility starts has fallen sharply in 2013, plunging 59% year-to-date. Running counter has been the public works sector, posting year-to-date growth at 5%. The largest increase was registered by bridge construction, up 41%, reflecting the start of several very large bridge projects over the course of 2013. The substantial year-to-date gain for bridge construction was accompanied by a 9% increase for highway construction. For environmental public works, year-to-date growth was reported for river/harbor development, up 25%; and water supply construction, up 10%; while sewer construction was unchanged from its 2012 amount. The miscellaneous public works category dropped 20% year-to-date, as the dollar amount of pipeline projects retreated from the strong pace witnessed during 2012.
Residential building in November improved 1% to $218.5 billion (annual rate). The upward push came from the multifamily side of the housing market, which climbed 18%. Large multifamily projects reported as November starts included a $450 million multifamily tower and the $126 million condominium portion of a $300 million condo hotel, both located in New York NY. Also reaching groundbreaking in November were a $114 million multifamily tower in San Francisco CA, a $100 million apartment complex in Huntington Station NY, and a $100 million multifamily tower in Chicago IL. Single family housing in November receded 3%, pulling back after a 4% gain in October. The November pace for single family housing was still 12% above what was reported at the outset of 2013.
During the first eleven months of 2013, residential building advanced 25% compared to a year ago. Single family housing will come close to matching last year’s strong percentage gain (up 29%), reporting a 27% increase in this year’s January-November period. By major region, single family housing showed this year-to-date performance – the South Atlantic, up 35%; the Midwest, up 29%; the West and Northeast, each up 26%; and the South Central, up 19%. Multifamily housing year-to-date climbed 21%, a strong rate of increase although revealing some deceleration from the sharp rise (up 37%) reported for the full year 2012. By major region, multifamily housing showed this year-to-date performance – the Northeast, up 43%; the Midwest, up 26%; the South Atlantic, up 22%; the West, up 11%; and the South Central, down 6%. The top five metropolitan areas in terms of the dollar amount of multifamily starts year-to-date were – New York NY, up 47%; Boston MA, up 87%; Washington DC, up 9%; Miami FL, up 5%; and Los Angeles CA, down 24%.
The 6% increase for total construction starts at the national level during the first eleven months of 2013 was supported by gains in three of the five major regions. Leading the way was the Northeast, up 21%; followed by the Midwest, up 11%; and the West, up 9%. Total construction starts in the South Central region were unchanged year-to-date, while the South Atlantic showed a 3% decline. The South Atlantic shortfall reflected the comparison to the first eleven months of 2012 that included the start of two massive nuclear facilities. If electric utilities are removed from the year-to-date construction statistics in the South Atlantic, then total construction for that region in 2013 would be up 21%.
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"The construction industry has yet to move from a hesitant up-and-down pattern to more sustained expansion," stated Robert A. Murray, Vice President of Economic Affairs for McGraw-Hill Construction. "After plunging 23% in 2009, new construction starts edged up only 1% in 2010 and were unchanged in 2011, so the modest 2% increase predicted for 2012 is really more of the same. The backdrop for the construction industry remains the fragile U.S. economy, which continues to see slow employment growth, diminished funding from federal and state governments, and the uncertainty related to the U.S. fiscal stalemate and the European debt crisis. On the plus side, energy costs are now receding, interest rates are very low, and lending standards are beginning to ease for commercial real estate development." Given these divergent factors, the construction market this year continues to see a mix of pluses and minuses by major sector, as follows:
