(IND) Nonresidential Construction Starts Down for the Third Month in a Row

03/18/2014 by Bernard M. Markstein

Value of United States Construction Starts February 2014 — Year to Date (Reed Construction Data)
	Jan-Feb 2014 ($ millions)	% Change (Jan-Feb 2014 vs Jan-Feb 2013)	% Change (Feb 2014 vs Jan 2014)
Hotel/Motel	172	-16.30%	80.40%
Retail	132	-10.00%	7.50%
Parking Garage	474	23.40%	-35.20%
Amusement	2,482	42.30%	-47.30%
Private Office	220	-17.60%	47.80%
Government Office	138	-28.40%	-56.80%
Laboratory	153	-59.20%	14.30%
Warehouse	627	-25.00%	-56.80%
Miscellaneous Commercial	624	-66.00%	13.80%
COMMERCIAL	5,023	-16.10%	-33.90%
INDUSTRIAL (Manufacturing)	289	582.60%	-22.60%
Religious	525	32.00%	190.10%
Hospital/Clinic	1,687	1.70%	34.60%
Nursing/Assisted Living	324	28.40%	392.40%
Library/Museum	2,390	61.30%	-51.50%
Police/Courthouse/Prison	2,881	-37.00%	-36.50%
Military	1,761	-13.40%	-4.90%
School/College	2,871	18.10%	-49.50%
Miscellaneous Government	855	-4.30%	10.60%
INSTITUTIONAL	13,294	-3.10%	-22.70%
Miscellaneous Non-residential	2,145	-50.80%	-16.00%
NON-RESIDENTIAL BUILDING	20,751	-13.90%	-24.90%
Airport	190	73.00%	-76.90%
Road/Highway	6,079	11.10%	6.10%
Bridge	1,854	10.10%	18.00%
Dam/Marine	500	8.50%	-14.50%
Water/Sewage	3,181	9.00%	5.70%
Miscellaneous Civil	2,218	19.10%	-20.50%
HEAVY ENGINEERING	14,022	12.10%	0.20%
TOTAL NON-RESIDENTIAL	$34,773	-5.00%	-15.60%
The table is based on not seasonally adjusted (NSA) data. Source: Reed Construction Data (RCD). Table: Reed Research Group and Reed Construction Data – CanaData.

Reed Construction Data announced today that the value of February construction starts, excluding residential contracts, dropped 15.6% to $15.9 billion after falling 13.7% in January. This was the lowest value for starts since February 2012’s $14.0 billion and marked the third consecutive monthly decline.

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 down 3.2% from February 2013. The year-to-date starts data, which totaled $34.8 billion, were 5.0% lower than for the same two months in 2013. Given the unusually severe weather over much of the nation this winter, it would be premature to draw the conclusion that nonresidential construction is in trouble. March and April starts will be key to determining the health of this part of the economy.

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.

Commercial starts plunged 33.9% in February after decreasing 14.5% in January. Year-to-date, commercial starts were 16.1% lower than in the same period last year. Retail starts, going against the grain, increased for the third month in a row, advancing 7.5% in February after a 14.1% increase in January. Year-to-date, retail starts were down 10.0% from the same period a year ago. Private office starts surged 47.8% for the month, but were down 17.6% on a year-to-date basis. Hotel and motel starts rebounded a robust 80.4% from January’s 59.6% nosedive. Year-to-date, they were down 16.3% compared to the same period in 2013.

Industrial (manufacturing) building starts tumbled 22.6% in February after surging 47.8% in January. On a year-to-date basis, they were up an astounding 583% from the same period in 2013, due to an unusually low number of starts last year.

Institutional building starts sank 22.7% in February after falling 10.8% in January. On a year-to-date basis, starts were down 3.1%. Starts for schools and colleges cratered 49.5% in February, after jumping 34.6% in January. Despite the sharp decline in February, starts were 18.1% higher on a year-to-date basis than the same period in 2013. Hospitals and clinics starts also saw an increase in February, up 34.6%, after dropping 36.9% in January. They were up a modest 1.7% year-to-date.

 

Heavy engineering (non-building) starts edged up 0.2% in February after decreasing 19.9% in January. Year-to-date starts were 12.1% higher than over the same period in 2013. Starts for all the categories in the group were up on a year-to-date basis. Road and highway starts, the largest spending category in the group, were up 6.1% in February and 11.1% on a year-to-date basis. Another large category, water and sewer starts, was up 5.7% in February and 9.0% on a year-to-date basis.

The remarkably harsh weather this winter has adversely affected construction in general. Heavy engineering, however, seems to be faring surprisingly well and may even be benefitting from the impact of the cold weather on the nation’s infrastructure. Bursting water pipes force utilities to make immediate repairs/replacements, accelerating any planned pipe upgrade projects—a condition particularly true in the south where visits from the polar vortex tested infrastructure.

Nonresidential building construction does not receive any such “benefit” from the bad weather and is clearly hurt by it. As a result, it is too early to determine the outlook for this sector of the construction industry based on the starts data until better weather prevails. Our expectation is that delayed projects will move forward with improved weather, leading to large increases in starts at that point.

Source: Reed Construction Data