(IND) November Construction Starts Turn in a Solid Performance

Reed Construction Data announced today that the value of November construction starts, excluding residential contracts, rose a solid 12.5% to $25.0 billion after increasing 5.0% in October. Since the starts data are not seasonally adjusted (NSA), caution should be used in analyzing monthly movements. Year-over-year comparisons are often used, as they remove much of the seasonal effects. Starts were up a less spectacular 2.0% compared to November 2012. The year-to-date starts data, which totaled $250.5 billion, were up a decent, if not overwhelming, 4.3% from the same period in 2012.

The value of construction starts1 each month is summarized from the Reed database of all active construction projects in the U.S., excluding residential construction. Missing project values are estimated with RSMeans building cost models.

Monthly commercial starts have experienced some ups and downs over the course of this year, but have generally trended upward. In November, commercial starts rocketed up 57.5%, after a more modest 2.6% increase in October. Year-to-date, commercial starts were 33.8% higher than in the same period last year. Retail starts, the largest category in the group, advanced 2.5% in November and were up a robust 48.8% year-to-date. Private office starts, the next largest category, surged 35.3% for the month and were up a respectable 12.9% on a year-to-date basis. Hotel and motel starts continue to perform well, jumping 16.1% in November. Year-to-date, they were up a stellar 75.2% compared to the same period in 2012.

Industrial (manufacturing) building starts continue to fluctuate wildly on a monthly basis. After more than doubling in October (up 178%) they plummeted 66.4% in November. That left them down 14.8% on a year-to-date basis from the same period in 2012.

Institutional building starts sank 11.6% in November after rising 7.7% in October. On a year-to-date basis, starts were down 10.5%. Construction activity for the institutional building group has performed poorly this year. January through October Census Bureau NSA construction spending numbers for the group were 6.0% lower than for the same period in 2012. The outlook for the group remains poor in the near term, with starts for schools and colleges, the dominate spending category (accounting for over half of the starts in the group), down 8.0% on a year-to-date basis. Starts for the next largest spending category, hospitals and clinics, dropped 19.1% in November and were down 4.2% on a year-to-date basis.

Construction starts in general, and nonresidential building starts in particular, have struggled against numerous headwinds this year that resulted in less than optimal growth for the U.S. economy. The headwinds included higher social security payroll taxes, the federal government shutdown in October, the threat of a U.S. government debt default, and much of Europe in recession. As some of these factors diminish (most European countries are emerging from recession and Congress appears about to pass a budget that will extend through fiscal year 2015) the outlook for nonresidential construction has improved.

Further, the economy and construction will benefit from other positives. These include continued improvement in the housing market and, despite the expected tapering of the Federal Reserve’s asset purchase program (known as Quantitative Easing), which will push up interest rates, interest rates will remain low by historical standards. Tapering by the Fed will be an indication of strength in the economy. That strength (i.e., faster growth) will be a greater stimulus for nonresidential construction than the drag from higher interest rates.

Heavy engineering (non-building) starts climbed 15.1% in November after falling 2.0% in October. November year-to-date starts were 3.9% higher than over the same period in 2012. Starts for all the categories in the group were up on a year-to-date basis except for miscellaneous civil construction starts, which were down 6.3%.

The largest category in the group, road and highway construction starts, has struggled due to lack of a longer-term program at the national level and lack of sufficient funds flowing into the highway trust fund. Starts were up a modest 1.1% on a year-to-date basis. The next largest category in the group, water and sewage construction starts, is doing better, but not setting any records, up 4.8% on a year-to-date basis.

Heavy engineering projects have suffered due to reduced government funding, although there has been some improvement of late and indications that more funding will be coming in the future. State and local governments are no longer willing to wait for federal government action. In many cases, new projects are the result of public-private partnerships. For the foreseeable future expect these partnerships to be a dominate force at the state and local levels.                   

Source: Reed Construction Data

Value of United States Construction Starts:

November 2013 — Year to Date (Reed Construction Data)
	Jan-Nov 2013 ($ millions)	% Change (Jan-Nov 2013 vs Jan-Nov 2012)	% Change (Nov 2013 vs Nov 2012)
Hotel/Motel	$9,275	75.20%	16.10%
Retail	$23,417	48.80%	2.50%
Parking Garage	$1,732	29.30%	-52.40%
Amusement	$5,489	30.70%	493.90%
Private Office	$11,759	12.90%	35.30%
Government Office	$2,002	-1.10%	-34.00%
Laboratory	$2,793	41.00%	204.60%
Warehouse	$1,682	-36.90%	61.30%
Miscellaneous Commercial	$10,863	37.00%	-4.40%
COMMERCIAL	$69,012	33.80%	57.50%
INDUSTRIAL (Manufacturing)	$4,444	-14.80%	-66.40%
Religious	$1,493	-9.40%	27.70%
Hospital/Clinic	$14,118	-4.20%	-19.10%
Nursing/Assisted Living	$3,395	6.20%	-25.50%
Library/Museum	$2,096	-7.60%	-68.30%
Police/Courthouse/Prison	$3,930	-12.70%	-20.40%
Military	$5,455	-44.30%	-5.90%
School/College	$42,383	-8.00%	0.00%
Miscellaneous Government	$8,968	-2.30%	-10.10%
INSTITUTIONAL	$81,838	-10.50%	-11.60%
Miscellaneous Non-residential	$2,280	-4.70%	9.70%
NON-RESIDENTIAL BUILDING	$157,575	4.60%	10.90%
Airport	$2,866	15.60%	-28.30%
Road/Highway	$38,601	1.10%	-2.60%
Bridge	$9,793	13.70%	-6.40%
Dam/Marine	$3,595	72.60%	34.80%
Water/Sewage	$22,292	4.80%	4.90%
Miscellaneous Civil	$15,754	-6.30%	105.00%
HEAVY ENGINEERING	$92,900	3.90%	15.10%
TOTAL NON-RESIDENTIAL	$250,475	4.30%	12.50%
The table is based on not seasonally adjusted (NSA) data. Source: Reed Construction Data (RCD). Table: Reed Research Group and Reed Construction Data – CanaData.