Nov. fails to hold Oct. construction pace

Real Estate Weekly, Jan 8, 1992

Nov. fails to hold Oct. construction pace

Contracting for new construction slipped 4 percent in November when the Dodge Index (1982 = 100) retreated from October's 151, the high for the year, to 145 reported McGraw-Hill's F. W. Dodge Division.

The latest month's decline was shared by nonresidential building, down 8 percent, and public works construction, off 6 percent. Residential building held steady in November as a small gain in single family homebuilding offset a further decline of multifamily projects.

Through 11 months, 1991 construction contracting trailed the previous year's total by 9 percent. The gap has been closing with each successive quarter, however, and a gain of as much as 10 percent is forecast for 1992.

"1991 has been the construction industry's |turnaround' year, with modest but continuing improvement from beginning to end - the opposite of 1990 when building activity deteriorated steadily," said George A. Christie, chief economist for McGraw-Hill's Construction Information Group. "In typical fashion, the recovery of construction contracting has so far been confined largely to housing, the most credit-sensitive part of the market. The latest interest rate lowering by the Fed will help bring one-family home building close to its full potential in 1992, but the distressed commercial real estate market is down for the long count."

Following a spurt of contracting in October, nonresidential building settled back 8 percent in November to a "more sustainable level." The latest data revealed declines in most categories, with commercial and industrial projects off 10 percent, and institutional building down 7 percent.

Industrial construction was particularly weak in November, while educational building resisted the general reversal showing a small gain.

The usually dependable public works group suffered a 6 percent lapse in November as contracting for sewers and waste treatment facilities sagged. "Passage of the new six year, $150 billion transportation program assures renewed strength in public works construction beginning early in 1992," noted Christie.

With all but the final month of 1991 on record, last year's contracting data showed that three regions - the Northeast, the Midwest, and the South Atlantic - experienced setbacks which almost exactly paralleled the national decline of 9 percent for total newly started construction. The West, with a 15 percent shortfall, is currently the region in most difficulty, while the long-depressed South Central enjoyed a gain of 4 percent in 1991.