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January Construction Slides 2 Percent

The value of new construction starts in January retreated 2 percent to a seasonally adjusted annual rate of $572.4 billion, reports McGraw-Hill Construction. The pattern of activity by major sector was mixed—residential building was down slightly while nonbuilding construction experienced a steeper decline. At the same time, nonresidential building rebounded after its lackluster volume in December.

The latest month’s data produced a 172 reading for the Dodge Index (1996=100), compared to a revised 175 for December. For all of 2004, the Dodge Index averaged 176. “January showed some of the behavior that’s expected to take place in 2005—modest slippage for housing, and strengthening for nonresidential building,” stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction.

Residential building in January decreased 1 percent to $333.5 billion (annual rate). Both sides of the housing market showed a very mild loss of momentum, with single-family housing down 1 percent and multifamily housing down 2 percent. January’s level of activity was still healthy by recent standards, and both single and multifamily housing were within 1 percent of their average pace for 2004. The cost of financing continues to be supportive: The 30-year fixed mortgage rate averaged 5.7 percent in January, down from 5.8 percent in December, and February has seen this series recede even further to 5.6 percent.

During 2004, multifamily housing was supported by a growing amount of condominium projects. January saw a continuation of this trend, with large condominium projects being started in Florida ($110 million and $97 million), Honolulu ($93 million), San Diego ($74 million), and Reston, Va. ($73 million). By geography, residential building in January performed as follows: the South Atlantic, up 6 percent; the West, up 3 percent; the South Central, down 3 percent; and the Northeast and Midwest, each down 12 percent.

Nonresidential building in January increased 5 percent to $148.1 billion (annual rate). Stronger contracting was shown by most of the commercial structure types, with stores up 11 percent, offices up 11 percent, and hotels, up 34 percent. The office category was helped by the start of a $71 million headquarters project in Providence, R.I. Warehouse construction was the only commercial category to retreat in January, falling 31 percent. Manufacturing plant construction rebounded from a very weak December, jumping 185 percent with support coming from the start of a $325 million semiconductor plant in Texas, a $75 million ethanol plant in Minnesota, and a $50 million automotive engine plant in Michigan.

The institutional nonresidential categories registered a mixed performance in January. Growth was reported for school construction, up 3 percent; public buildings, up 6 percent, and amusement-related projects (arenas, theaters, convention centers), up 75 percent from an unusually weak December. On the negative side, January witnessed reduced contracting for healthcare facilities, down 17 percent; churches, down 20 percent; and transportation terminals, down 31 percent.

On an unadjusted basis, total construction in January 2005 was reported at $39.3 billion, up 1 percent from January 2004. By sector, residential building was up 6 percent year-over-year, while nonbuilding construction was up 12 percent. Nonresidential building trailed its January 2004 amount by 11 percent.

The regional pattern for January 2005 total construction compared to January 2004 was the following: the South Central, up 14 percent; the South Atlantic, up 7 percent; the Northeast, up 3 percent; the West, down 2 percent; and the Midwest, down 15 percent.

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