The value of new construction starts increased 2 percent in April to a seasonally adjusted annual rate of $599.6 billion, reports McGraw-Hill Construction, a division of The McGraw-Hill Companies. Nonresidential building continued to show improvement after its weak performance at the beginning of 2005, residential building was essentially steady, and public works construction registered a moderate decline. For the first four months of 2005, total construction on an unadjusted basis came to $185.9 billion, a 2 percent gain relative to last year’s January–April period.
The latest month’s data lifted the Dodge Index to 181 (1996=100), compared to a revised 177 for March. For 2004 as a whole, the Dodge Index averaged 177.
“So far in 2005 the construction industry has been buoyed by the robust volume of homebuilding, but there’s also been concern about the slower pace for nonresidential building after the modest upturn witnessed during 2004,” stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. “The March and April gains for nonresidential construction starts suggest that the slowdown at the end of 2004 and early 2005 may turn out to be a short-lived event. The recent ‘pause’ is likely related to an adjustment period for developers and owners, as they modify plans in response to last year’s sharp increase in materials costs.”
Nonresidential building in April jumped 15 percent to $157.7 billion (annual rate). This marked the second straight gain following a very weak February, although April’s level was still 2 percent below the average pace for nonresidential building during 2004. The commercial sector in April showed a very healthy performance for store construction, rising 24 percent with support coming from the continued strength for projects utilizing the upscale “lifestyle center” format. Office construction grew 16 percent, helped by groundbreaking for an $85 million project in Northern Virginia and a $63 million project in New York City.
Losing some momentum in April were warehouses, down 2 percent; and hotels, down 3 percent. The modest slippage for hotels followed a 66 percent surge in March, and April featured the start of a $119 million hotel/casino project in Las Vegas, Nev. The manufacturing plant category in April was up a slight 1 percent, basically staying at a low volume relative to the improved contracting experienced during much of last year.
The institutional structure types showed across-the-board gains in April. School construction advanced 22 percent, boosted by the start of large high schools in Massachusetts ($64 million and $42 million), Maryland ($46 million) and Texas ($44 million). Strong gains were also registered by amusement-related projects, up 34 percent, public buildings, up 28 percent; and churches, up 24 percent. Transportation terminals increased 8 percent, and healthcare facilities grew 7 percent. The gain for healthcare facilities followed a 35 percent jump in March; April’s contracting was elevated by the start of large hospital projects in Nevada ($150 million), California ($149 million), Georgia ($91 million), Texas ($60 million), Wisconsin ($60 million), Louisiana and South Carolina (both $43 million).
Residential building, at $349.4 billion (annual rate), settled back 1 percent in April. The April volume was still 5 percent higher than the average pace for 2004, a year in which a new annual record was established. Single-family housing in April remained very strong, rising 2 percent compared to March.
Multifamily housing slipped back 15 percent, although the comparison was relative to a March that included $641 million related to the condominium/apartment portion of the Trump Tower in Chicago. If this very large project is excluded from the March statistics, then multifamily housing in April would be down only a slight 1 percent. Like recent months, April included the start of a number of major condominium projects, with the three largest located in Florida ($143 million), New York ($61 million) and Oregon ($49 million).
Long-term interest rates are still very low, maintaining brisk homebuyer demand for both single-family housing and condominiums. During April, the 30-year fixed mortgage rate settled back to 5.8 percent after edging up to 6.0 percent in March. In May, this series receded even further to 5.7 percent.
By region, residential building in April was the result of this pattern: the West, up 3 percent; the South Atlantic, up 2 percent; the South Central and Northeast, each up 1 percent; and the Midwest, down 14 percent.
During the first four months of 2005, the 2 percent increase for total construction versus 2004’s corresponding period reflected this behavior by major sector: nonresidential building, down 8 percent; residential building, up 6 percent; and nonbuilding construction, up 6 percent.
In terms of geography, total construction showed this year-to-date performance: the South Central, up 5 percent; the West, up 4 percent; the South Atlantic, up 3 percent; the Northeast, unchanged; and the Midwest, down 3 percent.
