Report: January construction starts retreat by double digits

The value of new construction starts dropped 12 percent in January to a seasonally adjusted annual rate of $469.1 billion, according to McGraw-Hill Construction. The decline follows a sharp 23 percent increase for total construction in December, bringing the level of contracting back to the average pace that was reported during 2012.

According to McGraw-Hill Construction, much of January’s downturn was due to decreased activity for nonresidential building and housing, while the nonbuilding construction sector held close to its December volume.

The January statistics lowered the Dodge Index to 99, down from December’s 112. The full-year reading for 2012 was also 99.

“The pullback for construction starts in January was not surprising, given the up-and-down pattern that was present for much of 2012,” says Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. “The large increase in December followed two months of lackluster activity in October and November, and it’s likely that December benefitted from the start of projects that were earlier put on hold given the uncertain economic and political environment.

Murray adds that some of the uncertainty was eased by the January 1 agreement between the Obama administration and Congress, which averted the fiscal cliff for the time being. A congressional move to push back the debt-ceiling deadline to May also played a role in easing uncertainty.

“However, the automatic spending cuts as part of the sequestration process are scheduled to begin on March 1, and their implementation is likely to restrain the fragile economic expansion,” Murray says. “The upward trend for housing is still expected to continue during 2013, along with modest improvement for commercial building, but this year’s prospects for institutional building and public works remain in doubt.”