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Nonresidential Construction Starts Down for the Third Month in a Row

0 1545 Market Intelligence

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.

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.

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.


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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.

1 A start is determined by taking the announced bid date and adding 30 days. It is then assumed the project will actually break ground within 30-60 days of the start date. Reed continues to follow the project via our network of researchers so if the project is abandoned or re-bid, then the start data are subsequently updated to reflect the new information.

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by Bernie Markstein

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