Reed Construction Data announced today that the year-to-date value of U.S. construction starts through September 2007, excluding residential contracts, totaled $233.6 billion, 17.9% higher than in 2006 and down 8.6% from August. Because September is seasonally weaker than August, the month-to-month decline may not include any negative impact spilling over from the liquidity problems set off by the collapse of the subprime residential mortgage market. Nonetheless, the persistent surge in starts since early 2007 may be ending.

The starts growth trend appears to be ebbing down to only a small margin over the rate of project cost inflation. However, spending at non-residential job sites will continue to expand rapidly as previously started projects are completed. August spending increased an outsized 1.6% from July in the latest Census Bureau estimate. Increases of nearly 1.0% per month are expected well into next year.

The value of construction starts is summarized from Reed Construction Data’s database of all active construction projects in the U.S. Unreported project values were estimated using RSMeans construction cost models.

The significant changes in September were an approximate doubling of hotel, public safety and water and sewer projects, while starts declined by about one-third in the large retail, education and highway markets. The large declines were from very high starts totals in August, but could include some retail project delays or cancellations due to suddenly more expensive or unavailable construction financing.

The large September starts increases are more significant. Hotel starts returned to above the trailing 12-month average, suggesting that the hotel boom, largely casinos and resorts, is not yet over. The hotel market has a high risk of decline if financing becomes more difficult or expensive. The September surges in public safety building and water/sewer line and plant starts are both well above recent trends. September may be random, but it could also indicate a growth pickup in these markets, which typically are strongest at the end of a building cycle.

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