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Surge in Nonresidential Building Boosts May Construction Starts

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New construction starts increased 3% from April to May, according to a monthly survey by McGraw-Hill Construction. Month-over-month increases in the seasonally adjusted annual rate of new construction of residential and nonresidential buildings were offset by a decrease in the annual rate of nonbuilding construction, McGraw-Hill Construction said. The seasonally adjusted annual rate of total construction starts was $406.3bn in May, up 3% from $392,988bn in April. For the first five months of 2010, the unadjusted value of total construction starts was $162bn, down 2% from $165bn during the same period of 2009. “The recent pattern of construction starts indicates that activity has stabilized at a low level, with ups-and-downs on a monthly basis, but the transition to sustained expansion has yet to occur,” Robert Murray, vice president of economic affairs for McGraw-Hill Construction, said in the monthly report. “The good news with the May statistics is that nonresidential building rebounded after a very depressed April. However, the volume of nonresidential building remains quite low, and is likely to stay that way through 2010. "Much of this year’s upward movement is expected to come from public works construction, which lost momentum in May after earlier gains," Murray added. As seen in the chart above, McGraw-Hill Construction's Dodge Index was at a level of 86 in May, up from 83 in April. An index value of 100 reflects construction activity in the year 2000. Residential building increased 1% to $133bn in May. In addition, for the first five months of the year, unadjusted total value of residential building starts was $52.7bn, up 30% from $40.4bn during the same period of 2009. Multifamily housing increased 9%, the fourth straight month of increases. Two mixed-use developments in St. Louis contributed to May's increase, with the housing portions of the projects valued at $90m and $81m. Other starts in May include a $70m apartment facility in Bronx, NY, a $64m apartment portion of a mixed-use development in Honolulu and a $58m senior living center in Elmhurst, a suburb of Chicago. Construction starts for single-family housing decreased 1%. Regionally, the Midwest declined 13%, the Northeast was down 3%, while the West, South Atlantic and South Central regions all increased 3%. “The upward trend for single family housing at the national level seems to have paused for now, but it’s likely to resume later in 2010, helped by what’s expected to be the continuation of very low mortgage rates into the second half of this year," Murray said. The chart above shows monthly and yearly changes in construction starts for residential and nonresidential buildings, as well as nonbuilding construction. The annual rate of nonresidential building construction starts was $145.6bn in May, up 19% from April's rate of more than $122bn. However, the April rate of nonresidential building was down 21% from the March rate of $155.1bn. For the first five months of the year, nonresidential building construction totaled $56.7bn, down 16% from $67.5bn during the same time in 2009. Since peaking in 2007, nonresidential building construction starts are down 39%. Amusement related construction starts jumped 62% in May, due to the $80m renovation and expansion of the Pauley Pavilion in Los Angeles and the $75m expansion of the Fantasyland section of the Magic Kingdom theme park at Disney World in Orlando. Other monthly increases include a 31% increase in educational construction starts, including a $229m Army medical research facility in Maryland, a $122m university laboratory and science building in Massachusetts and a $100m performing arts center in Chicago. In addition, starts for healthcare facilities increased 2% and church construction increased 11%. Public buildings like courthouses and jails were down 3% and transportation terminals declined 30%. The hotel sector also declined 11%. Several commercial categories in May registered large percentage gains, relative to very low levels in April, McGraw-Hill Construction said. The office construction sector jumped 44% on the start of a $200m renovation project at the United Nations Conference Building in New York City. Stores and warehouses gained 26% and 28%, respectively in May. The manufacturing plant sector increased 33% on the start of a $96m solar technology semiconductor plant in Tennessee and a $95m lithium battery manufacturing plant in Florida. Nonbuilding construction was at a seasonally adjusted annual rate of $127.7bn, down 8% from $139bn in April. The total unadjusted value of construction starts in the first five months of the year was $52.7bn, also down 8% from $57.1bn in 2009. Highway and bridge construction dropped 22% in May, but year-to-date is up 15% in 2010 compared to 2009. The sewer and water supply system categories declined 13% and 51%, respectively. Electric utility construction was down 14%, but it still up 22% from the monthly average for all of 2009. Construction starts in this segment include an $820m gas-fired power plant in Tennessee, a $360m wind farm in Illinois, and a $195m wind farm in Oklahoma. The river/harbor development sector increased 29% on the start of several hurricane-reconstruction projects in New Orleans, including $238m for the Chalmette Loop Levee. The Kansas and Oklahoma portions of the Keystone oil pipeline project, valued at $1.1bn, helped the "other" public works category increased 64%. Write to Austin Kilgore.

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