Construction Starts End the Year on a Sour Note

Jan 21, 2014

Reed Construction Data announced today that the value of December construction starts, excluding residential contracts, plunged 12.1% to $22.5 billion after surging 15.3% in November. 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 almost the same as in December 2012 (-0.2%). For the year, which totaled $273.7 billion, starts rose a modest 3.3% from 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.

Value of United States Construction Starts
November 2013 — Year to Date
(Reed Construction Data)
  Jan-Dec 2013
($ millions)
% Change
(Jan-Dec 2013 vs
Jan-Dec 2012)
% Change
(Dec 2013 vs
Nov 2013)
Hotel/Motel $9,863 60.50% 29.20%
Retail $24,760 42.10% -20.00%
Parking Garage $2,009 35.70% 101.10%
Amusement $5,865 26.10% -84.20%
Private Office $13,659 20.10% -22.80%
Government Office $2,168 1.60% 32.50%
Laboratory $2,904 33.60% -84.70%
Warehouse $2,001 -32.90% -24.50%
Miscellaneous Commercial $11,470 8.90% 157.00%
COMMERCIAL $74,699 26.80% -33.70%
INDUSTRIAL (Manufacturing) $5,589 1.10% 246.40%
Religious $1,656 -8.70% -31.10%
Hospital/Clinic $15,851 -6.90% 16.50%
Nursing/Assisted Living $3,910 10.10% 20.10%
Library/Museum $2,336 -7.70% 79.50%
Police/Courthouse/Prison $4,169 -15.90% -22.00%
Military $5,534 -44.70% -54.90%
School/College $45,898 -9.00% 20.30%
Miscellaneous Government $9,525 -2.60% -9.90%
INSTITUTIONAL $88,879 -11.20% 7.40%
Miscellaneous Non-residential $2,574 -4.90% 92.00%
NON-RESIDENTIAL BUILDING $171,741 2.70% -8.60%
Airport $2,936 16.50% -75.80%
Road/Highway $41,746 1.00% 2.80%
Bridge $10,927 17.00% 28.30%
Dam/Marine $4,005 77.00% 48.40%
Water/Sewage $25,121 4.70% -36.70%
Miscellaneous Civil $17,215 -5.70% -36.40%
HEAVY ENGINEERING $101,950 4.30% -17.40%
TOTAL NON-RESIDENTIAL $273,691 3.30% -12.10%
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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Monthly commercial starts were on a wild ride in 2013, often varying widely from month to month. It was no different in December when commercial starts fell a sickening 33.7%. But that followed a dizzying jump of 59.5% in November. For the year, commercial starts were up 26.8% from 2012. Although two of the largest sectors in the group, retail starts and private office starts, fell sharply for the month (down 20.0% and 22.8%, respectively), for the year they were up 42.1% and 20.1%, respectively. Hotel and motel starts remained on the upswing, turning in a solid 29.2% gain for the month and increasing 60.5% for the year.

Industrial (manufacturing) building starts is another sector with wild monthly variations. In December, they rocketed up 246% after nose diving 66.2% in November. However, total starts for the year were up a modest 1.1% from 2012.

Institutional building starts rose 7.4% in December after falling 15.2% in November. For 2013, starts were down 11.2%. Starts for schools and colleges jumped 20.3% in December, but were down 9.0% for the year. Starts for hospitals and clinics advanced 16.5% in December, but were down 6.9% for the year.

Nonresidential building construction had a rough year in 2013. As of November, year-to-date construction spending was essentially unchanged from the same period in 2012 (down 0.1%) based on Census Bureau data. Nonresidential building starts did slightly better, increasing 2.7% for the year. With the expectation that the economy will grow faster this year, the outlook for nonresidential construction is for a better performance in 2014.

Heavy engineering (non-building) starts tumbled 17.4% in December after surging 26.3% in November. For 2013, starts were up a passable 4.3% from 2012. Starts for all the categories in the group were up for the year except for miscellaneous civil construction starts, which were down 5.7%. Starts for the largest category in the group, road and highway construction, rose a paltry 1.0% for the year. The next largest category in the group, water and sewage construction starts, were up a slightly more respectable 4.7% in 2013.

Heavy engineering projects struggled from limited government funding, although there has been some turnaround recently. Some state and local governments are taking matters into their own hands, bypassing federal government funding. Public-private partnerships are often the key to unlocking new projects. These partnerships are becoming the norm for state and local infrastructure projects.

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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