The Official Online Weekly Newspaper of NAHB
After a jump in June, the dollar volume of commercial construction project starts fell 6% in July, according to McGraw-Hill Construction’s report released on Aug. 19.
Total new construction was down 10%, even with a slight 3% increase for residential building supported by multifamily projects.
“America is in a very cautious mood about the overall economy and, combined with the difficulty in obtaining financing, we are stuck in the doldrums for construction,” said Gene Graf III, chair of NAHB’s National Commercial Builders Council.
“The best advice for builders is to try to get their house in order for any opportunity in the future,” he said.
Nonresidential Building Figures
Only a few categories of commercial projects showed increases from June to July, according to McGraw-Hill.
“Nonresidential construction activity has shown a great deal of volatility in recent months, but the overall trend across most property types is negative,” said NAHB senior economist Brian Lego.
The bright spots included a 190% jump for manufacturing buildings, which was buoyed by work starting on a semiconductor plant in Arizona and a laboratory in Boston.
Smaller increases were reported for educational buildings (12%), transportation terminals (44%) and churches (48%).
Among the sectors losing ground in July, health care facilities and amusement-related projects — which were both up in June — showed the largest declines of 55% and 45%, respectively.
Also following gains in June, hotel construction was down 32% in July and public buildings declined 21%.
Store and office construction were both down 9% in July and warehouse construction dropped 10%.
“Construction of new office space remains very weak due to still-high vacancy rates and sluggish job growth in many of the core office-using industries,” Lego said.
“While some of the fundamentals for the manufacturing sector have outperformed the U.S. economy as a whole, factory operating rates continue to lag well behind historic norms. Consequently, this has caused most construction activity for the sector to be isolated to a handful of industries and/or very specific build-to-suit projects,” he said.
“Retail and lodging construction continues to struggle as both of these consumer-oriented sectors cope with a combination of poor fundamentals on both the supply and demand side,” he added.
Nonresidential Architecture Billings
Another indication of the wobbly state of nonresidential construction, the American Institute of Architects (AIA) reported that its Architecture Billings Index (ABI) dropped more than a point in July.
This index shows the nine- to 12-month lag time between architecture billings and construction spending. A drop in the index reflects a decrease in the demand for design services. A score over 50 indicates that billings are on the increase, and a score below 50 shows billings are decrlining.
The July ABI score was 45.1, following a score of 46.3 in June — the steepest decline in billings since February 2010.
The scores by sector were: commercial/industrial (47.9), institutional (47.2), mixed practice (47.1) and multifamily residential (44.7)
Rise in Construction Services Prices
The amount contractors paid for construction materials and charged for completed projects both increased in July, according to an analysis of producer price index figures by the Associated General Contractors of America (AGC). However, AGC officials said that it was too early to tell whether contractors will continue to be able to raise prices.
The index for what contractors charge for construction projects increased between 1.0% and 1.3% in July and from 2.3% to 3.1% for the year, depending on building type.
With the exception of school construction, the monthly increases were at their highest rate of growth in two years, and the annual increases for all types of new construction were all at two-year highs.
The producer price index for all construction materials increased by 0.3% in July and 8.9% over the past 12 months.
Prices rose for copper ores, copper and brass mill shapes, prepared asphalt and tar roofing and siding products, and plastic resins and materials.
Diesel prices declined by 1.8% for the month, but remained 49.9% higher than a year earlier.