Construction picks up in March

By |  April 23, 2014

New construction starts rose 7 percent in March to a seasonally adjusted annual rate of $521.4 billion, according to McGraw Hill Construction, a division of McGraw Hill Financial.

Nonresidential building picked up the pace after its lackluster performance at the outset of this year, whereas nonbuilding construction showed a moderate gain. Meanwhile, residential building slowed as single-family housing remained sluggish. During the first three months of 2014, total construction starts on an unadjusted basis were reported at $107.4 billion, a 2 percent drop compared with the same time last year.

“The slow start for construction activity in early 2014 can be attributed to tough winter weather conditions, in combination with the up-and-down pattern that’s frequently been present during the hesitant upturn witnessed over the past two years,” says Robert A. Murray, chief economist for McGraw Hill Construction. “This is particularly true for nonresidential building, which bounced back sharply in March after depressed activity in January and February, alleviating some concern that its recovery may be stalling.”

The 2 percent decline for total construction starts on an unadjusted basis during the first three months of 2014 relative to last year was due to a mixed performance by major sector; nonresidential building was down 4 percent, residential building was up 3 percent and nonbuilding construction was down 8 percent.

By geography, the pattern of total construction starts for January, February and March 2014 was down 9 percent in the South Central states, down 7 percent in the Midwest, down 4 percent in the South Atlantic, up 4 percent in the West and up 8 percent in the Northeast.

Additional perspective comes from looking at 12-month moving totals, in this case the 12 months ending March 2014 versus the 12 months ending March 2013. On this basis, total construction starts were up 6 percent, as the result of this behavior by major sector: nonresidential building, up 7 percent; residential building, up 18 percent; and nonbuilding construction, down 8 percent.

By geography, the 12 months ending March 2014 revealed the following for total construction starts compared with the previous 12 months: up 15 percent in the Northeast, up 9 percent in the West, up 7 percent in the Midwest, up 3 percent in the South Atlantic and unchanged in the South Central states.

Nonresidential building in March was up 24 percent to $176.3 billion after declines in January (when it was down 9 percent) and February (when it dropped 7 percent). The manufacturing plant category provided much of the lift in March, surging 140 percent after a weak February.

The commercial categories in March edged up 1 percent, reflecting a mixed pattern by individual structure type. Office construction continued its ascent from low levels, advancing 17 percent. Hotel construction increased 19 percent, store construction fell 6 percent and warehouse construction in dropped 45 percent, experiencing a pause from its well-established upward trend.

Nonbuilding construction, at $136.5 billion, increased 6 percent in March thanks in part to a 170 percent rise for electric utilities. The public works categories overall in March retreated 8 percent, the result of a 53 percent drop for miscellaneous public works (site development, pipelines, mass transit) and a 10 percent slide for water supply construction. The other public works categories showed growth in March relative to February. Bridge construction climbed 45 percent, highway construction increased 26 percent, sewer construction was up 17 percent and river/harbor development climbed 11 percent.

“Nonresidential building’s potential for more growth in 2014 is being supported by a rising volume of bank lending directed at commercial real estate development, more energy-related manufacturing projects, and signs that the institutional building sector is finally turning the corner after five years of decline,” Murray says. “Nonbuilding construction in 2014 is seeing a less severe pullback for electric utilities compared to last year, although public works is generally proceeding at a slower clip.”

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