Total New Construction Starts in 2012 Advance 6%

NEW YORK, N.Y. — New construction starts in December climbed 23 percent to a seasonally adjusted annual rate of $530.0 billion, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies. The sharp increase for total construction followed two months of lackluster activity, as several very large projects in December helped to lift the pace of contracting. By major sector, substantial gains in December were reported for nonresidential building and nonbuilding construction, while housing maintained the steady upward trend that's been present for much of the past year. For all of 2012, total construction starts grew 6 percent to $463.6 billion, a moderate yet stronger rate of increase than what took place during 2010 (up 2 percent) and 2011 (up 1 percent).

The December statistics produced a reading of 112 for the Dodge Index (2000=100), up from a revised 91 for November. For 2012 as a whole, the Dodge Index averaged 98. “The year ended on a strong note, with December coming in at the upper end of the range of activity reported during 2012,” stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. “The subdued activity witnessed during October and November suggested that the hesitant recovery for construction starts might be losing momentum, but December's strength alleviates some of that concern. The 6 percent gain for total construction starts in 2012 indicates that the tenuous expansion for construction is beginning to gain traction, particularly after the basically flat activity experienced during the previous two years. In 2012, single family housing registered steady improvement, finally joining the recovery process already underway for multifamily housing. Commercial building, while still at a very weak level, edged upward, and electric utility starts achieved a new high in current dollar terms. However, both the institutional building and public works sectors continued to slide back, adversely affected by tight federal and state budgets.”

Nonresidential building in December surged 33 percent to $189.0 billion (annual rate), with growth registered by most of its structure types. The commercial sector featured a strong 53 percent gain for office construction, led by $714 million for the office portion of an $850 million 47-story high-rise building that is the initial project of the massive Hudson Yards development in New York, N.Y. Other large office projects that reached groundbreaking in December included an $81-million government office building in New Cumberland, Pa. and an $80-million headquarters for Southwest Airlines in Dallas, Texas. Store construction in December grew 37 percent, led by $129 million for the retail portion of the $850-million Hudson Yards high-rise, as well as an $85-million shopping center renovation in Saint Ann, Mo. Warehouse construction in December rebounded 84 percent from a very weak November, helped by a $96-million distribution center for a major grocery store chain in Orlando, Fla. In contrast to the increases shown by these commercial structure types, hotel construction in December was flat. Manufacturing plant construction, which can be volatile on a month-to-month basis, surged 177 percent in December after a very weak November. Two large projects boosted December's manufacturing performance — a $1.4-billion fertilizer plant in Iowa and a $500-million natural gas processing facility in Ohio.

On the institutional side, healthcare facilities in December grew 12 percent, aided by a $615-million hospital expansion in Palo Alto, Calif. and a $200-million ambulatory pavilion for a major hospital in Oak Lawn, Ill. Educational buildings, the largest institutional category, grew 4 percent in December, supported by a $325-million research facility in New York, N.Y. and a $95-million state library and museum in Juneau, Alaska. The smaller institutional categories all showed strong percentage growth in December. The public buildings category increased 56 percent, lifted by a $316-million correctional facility in Schwenksville, Pa., while a 22 percent gain for the amusement category reflected the start of a $100-million hockey arena in Allentown, Pa. After very depressed activity in November, transportation terminals and churches posted large December gains, rising 77 percent and 45 percent, respectively.

For 2012 as a whole, nonresidential building dropped 9 percent to $149.7 billion. The institutional categories fell a combined 12 percent, a bit steeper than the 11 percent slide reported for 2011.   The two largest institutional categories continued their retreat in 2012, with educational buildings down 14 percent and healthcare facilities down 6 percent. Other institutional declines for the full year 2012 were the following: public buildings and transportation terminals, each down 13 percent; churches, down 18 percent; and amusement-related projects, down 21 percent. The manufacturing plant category for the full year 2012 plunged 33 percent, retreating after the 80 percent gain reported in 2011 that reflected groundbreaking for a $3-billion coal-to-gasoline plant and two large semiconductor plants.   The commercial sector in 2012 grew 5 percent, not as large as the 15 percent gain reported for 2011, but still expansion. Moderate growth in 2012 was registered by stores, up 10 percent; hotels, up 14 percent; and warehouses, up 15 percent. However, office construction in 2012 slipped back 7 percent, given the comparison to 2011 which included the start of a $1.1-billion government data center in Utah. While the dollar amount for nonresidential building was down 9 percent for the full year 2012, square footage for nonresidential building was up 4 percent during this time.

The 6 percent gain for total construction starts at the national level in 2012 was the result of varied behavior at the five region level. Leading the way was the South Atlantic, up 19 percent, with much of the upward push coming from the start of the two nuclear power projects in Georgia and South Carolina. If these two projects are excluded, then total construction starts in the South Atlantic would be unchanged from the prior year. Gains for full year 2012 total construction were also reported for the Midwest, up 9 percent; the South Central, up 7 percent; and the Northeast, up 2 percent. The West was the one major region in 2012 to register a decline for total construction starts, falling 7 percent.

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