Nonresidential Building Declines Sharply in August

New construction starts in August dropped 9 percent at a seasonally adjusted annual rate of $540.6 billion, according to McGraw Hill Construction. The decline followed July’s elevated volume, the strongest so far in 2014, and brought activity back to the average pace reported during the first seven months of this year.

Nonresidential building fell sharply after being lifted in July by the start of several large manufacturing plant projects. Residential building in August, meanwhile, posted a modest gain, helped by the continued growth for multifamily housing. Through the first eight months of 2014, total construction starts on an unadjusted basis were $361.4 billion, up 4 percent from the same period a year ago.

The August statistics lowered the Dodge Index to 114 (2000=100), compared to a revised 126 for July.

“The broad trend for construction activity remains upward, but on a month-to-month basis there are still the occasional setbacks,” says Robert A. Murray, chief economist for McGraw Hill Construction. “Nonresidential building over the past two months was boosted by the start of several unusually large energy-related manufacturing projects, so the pullback in August was not unexpected. The commercial side of nonresidential building continues to see moderate growth, and there’s now further evidence that the institutional structure types have at least stabilized after a lengthy five-year decline.

“… Residential building continues to be supported by the ongoing strength shown by multifamily housing.  However, this year’s pause for single family housing has emerged as an area of concern, limiting the growth that’s being reported for total construction activity.”

Nonresidential building in August dropped 19 percent to $184.9 billion (annual rate) after strong gains over the past two months. The manufacturing plant category in August dropped 81 percent from July, a month that saw the start of a $3 billion petrochemical plant and a $1.7 billion ethylene plant, both located in Texas, among other large manufacturing plant starts. The institutional building group, however, climbed 12 percent in August. Healthcare facilities surged 76 percent after a weak July, lifted by the start of two large projects in New York City – an $800 million clinical medical facility and an $800 million ambulatory care center.

Residential building in August grew 2 percent to $235.6 billion (annual rate). Multifamily housing provided the upward push, increasing 10 percent. The largest multifamily project entered as August a start was the $718 million multifamily portion of the Nordstrom Tower in New York City.

Single family housing in August slipped 1 percent, staying basically flat with the level that was reached near the end of 2013.

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