New construction starts in September advanced 10 percent to a seasonally adjusted annual rate of $604.1 billion, according to McGraw Hill Construction, a division of McGraw Hill Financial. The increase followed an up-and-down pattern during the previous two months, and brought activity to its highest level so far during 2014. Nonresidential building registered a sharp gain, helped by an elevated pace for several institutional categories plus another brisk month for manufacturing plants, according to the report.
There was a decline for residential building in September, according to the report. During the first nine months of 2014, total construction starts on an unadjusted basis were $419.5 billion, a 5-percent gain compared to last year.
The September data lifted the Dodge Index to 128 (2000=100), up from a revised 116 for August, and slightly ahead of July’s 126 (the previous high for this year).
“While the progress for construction starts has been uneven at times on a month-to-month basis, the quarterly averages show that an upward trend has been re-established,” says Robert A. Murray, chief economist for McGraw Hill Construction. “In this year’s first quarter, construction starts fell back 10 percent, but then climbed 6 percent in the second quarter and another 6 percent in the third quarter. A key factor in keeping the construction expansion going in 2014 has been the greater role now being played by nonresidential building. Commercial building has continued to see moderate growth from low levels, and the manufacturing building category is still showing a surge of chemical and energy-related plants reach groundbreaking. What’s different in 2014 is that the institutional structure types are now beginning to contribute to the nonresidential building upturn. In contrast, both public works and electric utilities have generally lost momentum during 2014, notwithstanding their strong showing in September. And, residential building is now providing a much smaller lift than in the past two years, as the sluggish performance by single family housing has outweighed further gains by multifamily housing.”
Nonresidential building in September increased 15 percent to $228.5 billion (annual rate), after pulling back in August. The institutional building group soared 33 percent, with substantial support coming from a 322-percent hike for the amusement and recreational category.
Educational facilities, the largest nonresidential building category by dollar volume, climbed 34 percent in September. The public buildings category (courthouses and detention facilities) grew 11 percent, but religious buildings fell 30 percent. The healthcare facilities category plunged 44 percent, sliding back from a strong August, according to the report.
The manufacturing plant category surged 105 percent. Hotel construction slipped a modest 1 percent, according to McGraw Hill Construction.
Residential building in September dropped 9 percent to $212.7 billion (annual rate). Multifamily housing fell 23 percent, retreating from the strong activity that was reported in August.
“This year’s stall for single-family housing means that the lift provided to total construction is much less than what occurred during the prior two years, when single family housing advanced 29 percent in 2012 and 26 percent in 2013,” says Murray. “The 20-percent down-payment requirement, generally in effect since the end of the financial crisis, has made it difficult for lower- and middle-income households to get approved for a mortgage, and more attention is now being directed by federal officials at ways to expand access to home loans.”