Dodge reports construction contracts fell 5% in Nov

Real Estate Weekly, Jan 10, 2001

Contracting for new construction decreased 5% in November 2000 to a seasonally adjusted annual rate of $451.0 billion, according to the F. W. Dodge division of The McGraw-Hill Companies. All three major industry sectors reported declines -- nonresidential building and non-building construction retreated from a robust October, while continued slippage for single family housing pulled down the residential total.

November's data lowered the Dodge Index to 179 (1992=100), compared to 187 for October and 182 for September. During the first half of 2000, the Dodge Index averaged 185, then fell to 179 in July and August before experiencing a brief rebound in early autumn. For all of 1999, the Dodge Index had averaged 177. "The construction industry has clearly slipped back from its performance during the first half of 2000," stated Robert A. Murray, vice president of economic affairs for Dodge. "Yet, the level of activity remains reasonably healthy, and total construction for the full year should still be able to post an increase, marking the ninth straight year of expansion."

Nonresidential building fell 4% in November to $159.5 billion. Reduced contracting was shown by schools, down 3%; office buildings, down 10%; hotels, down 25%; and manufacturing plants, down 43% after a surge of activity in October.

Other nonresidential categories witnessed moderate improvement in November, including warehouses, up 1%; stores, up 7%; churches, up 12%; healthcare facilities, up 13%; and amusement-related projects, up 15%.

Murray noted, "Such institutional categories as schools and churches are expected to remain near current levels in the coming months, while any loss of momentum for offices should stay modest since many metropolitan areas continue to see low office vacancy rates. At the same time, the slowing economy has already had a noticeable impact on hotel construction, and retail construction may become increasingly vulnerable in the coming year."

Residential building, at $206.2 billion in November, was also down 4%. Single family housing dropped 5% in dollar volume, while multifamily housing posted a smaller decline of 2%. For the near term, homebuyer demand will be dampened by weaker consumer confidence amidst a slowing economy. On the plus side, the cost of financing has recently become more supportive -- the 30-year fixed mortgage rate averaged 7.7% in November after October's 7.8%, and December has seen a further retreat to 7.4%. By geography, residential building in November showed the most pronounced loss of momentum in the South Central region, down 14%. The other four major regions revealed this pattern for residential building -- the Midwest, down 5%; the South Atlantic, down 3%; the West, down 1%; and the Northeast, up 1%.

Non-building construction dropped 7% in November to $85.3 billion. Highway and bridge construction plunged 26% from an unusually strong October, while electric power plant construction settled back 7%.

The environmental public works categories in November strengthened with these gains -- river/harbor development, up 6%; water supply systems, up 22%; and sewer systems, up 31%. Murray noted. "Despite a subdued November, highway and bridge construction is likely to see further growth in the months ahead, given the 16% funding increase already approved for the federal-aid highway program for the fiscal year 2001. Increased federal funding should also enable the environmental public works categories to see greater activity during 2001."

During the first 11 months of 2000, total construction on an unadjusted basis was up 3% compared to 1999. By major sector, residential building advanced 6%, while non-building construction grew 5%. Nonresidential building during the January-November period trailed the prior year by 2%. By geography, total construction contract value registered this pattern during 2000's first eleven months -- the Northeast, up 9%; the West and South Atlantic, each up 5%; the South Central, down 2%, and the Midwest, down 3 percent.