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Construction starts dive, but housing sales improve

August 28, 2012
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July brings the pace of total construction starts back to the lackluster activity reported at the outset of 2012. Separate reports from the Federal Housing Finance Agency, the National Association of Realtors and the Census Bureau showed, respectively, rising prices for existing single-family houses, rising sales and falling inventories for existing homes, and rising sales and record-low inventories of new homes.

N New construction starts fell 10% in July, seasonally adjusted, McGraw-Hill Construction reported Aug. 21, based on data it collected. “After showing improvement during the spring, the pace of construction starts retreated over the past three months...July brings the pace of total construction starts back to the lackluster activity reported at the outset of 2012….Nonbuilding construction in July dropped 18%. The electric utility category plunged 36%, falling for the third month in a row…The public works sector in July fell 16%, sliding back after a brief upturn in June….

“On the plus side, highway construction in July improved 6% from a lackluster June, although July’s amount was still 8% below this category’s average pace during 2011. [Nonresidential building] decreased 7% in July, with weaker activity reported for the majority of the institutional categories. Educational facilities in July dropped 12%, after showing some improvement during the previous two months….

“The commercial categories in July were able to show modest growth. Hotel construction in July climbed 13% [and store construction advanced 6%]. Office construction in July grew 4%, following a steep 30% drop in June,” while warehouse construction was unchanged. “The manufacturing plant category in July dropped 31%, retreating for the second month in a row after the heightened activity back in May. Residential building in July slipped 6%...due to a 25% pullback from multifamily housing, following strengthening activity in May (up 32%) and June (up 7%)….Single-family housing in July edged up 1%, not as strong as some of the gains shown earlier in 2012, but essentially maintaining the improved amount reported in May and June.”

Manufacturing construction may slow

Other reports suggest the recent torrid growth in manufacturing construction may slow. The U.S. Census Bureau reported Aug. 24 that net new orders for durable goods from U.S. manufacturers rose 4.2% in July, seasonally adjusted, but mainly due to a surge in aircraft and other transportation equipment orders. Wells Fargo Economics commented, “our favorite gauge of durable goods orders - nondefense capital goods orders, excluding aircraft - fell 3.4%. On a three-month annualized basis, this series is down 14.4% - the largest decline since February 2007…we have noted worrying signs that various purchasing managers’ indexes have shown for the manufacturing industry, and today’s report on durable goods leaves us a little more concerned about the outlook for business spending.”

According to an IIR News Alert on Tuesday from Industrial Information Reports, “The value of construction starts for the metals and minerals industry in North America is on pace to match the record-breaking numbers of 2011,” based on data it compiled. “In 2011, the value of construction starts more than doubled those in 2010, jumping from about $15 billion in 2010 to more than $35 billion. During this period, mining, steel manufacturing and proppant manufacturing projects [led] the wave of projects.”

Headlines from IIR reported Aug. 24: “U.S. Automotive Sector Expects to See $1.1 Billion in Construction Starts in Third-Quarter 2012,” and “North American Pulp and Paper Planned Expenditures Show Modest $1.1 Billion for Fourth-Quarter 2012.”

AIA billings up, house prices rise

The American Institute of Architects reported Aug. 22 that its Architecture Billings Index score, which measures the difference between the number of firms that say business rose or fell in the last month from the month before, was 48.7 in July, up “considerably” from the mark of 45.9 in June but still reflecting a decrease in demand for design services. (Any score below 50 indicates a decline in billings.) Scores by practice concentration (based on three-month moving averages) varied: multifamily, 51.4; mixed practice, 49.1; commercial/industrial, 48.4; and institutional, 46.6.

“Although overall business conditions remain disappointing for many firms, certain construction sectors appear relatively strong,” the institute’s Jennifer Riskus reported Aug. 23. “This month, survey panelists selected the top three construction sectors (of those that their firms serve) that they perceive to be the strongest at present. Nearly six in 10 firms named commercial/industrial rehabilitations and retrofits [as one of the three strongest sectors], followed by 48% who selected institutional rehabilitations and retrofits, and 39% who indicated new office construction.”

Separate reports on Aug. 22 and Aug. 23 from the Federal Housing Finance Agency, the National Association of Realtors and the Census Bureau showed, respectively, rising prices for existing single-family houses, rising sales and falling inventories for existing homes, and rising sales and record-low inventories of new homes. Collectively, these reports suggest that single-family construction will continue to increase in the next several months.

The RS Means Construction Cost Index inched up 0.3% from April 1 to July 1, after no change in the first quarter, and was 1.8% higher than on July 1, 2011, according to a quarterly report that RS Means distributed last week. The index averages the cost of materials, labor and equipment rentals for nine building types in 318 U.S. and Canadian cities.

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