Non-Residential Construction Climbs 17% In August October 12, 2008

Nonresidential building in August climbed 17% to $255.7 billion (annual rate), reflecting the start of a $3.5 billion steel processing facility in Alabama and the start of the $800 million Concord Casino/Hotel and Convention Center in the Catskills region of New York (Kiamesha Lake).  If these two massive projects are excluded, nonresidential building in August would be down 6%.  The manufacturing building category in August registered a nine-fold increase from a depressed July, with much of the boost provided by the massive steel plant.  Other large manufacturing projects reported as August starts were a $160 million ethanol plant in Iowa and a $108 million food processing plant in Florida.  The amusement and recreational category in August jumped 41%, lifted by $275 million for the casino and convention center portion of the Concord project.  Hotel construction in August grew 12%, supported by $286 million for the hotel portion of the Concord project.  The educational building category in August increased 3%, featuring groundbreaking for eight large high schools valued each in excess of $50 million.  Gains in August were also reported for churches, up 8%; dormitories, up 9%; and transportation terminals, up 12%.

On the negative side, the commercial categories (excluding hotels) showed these August reductions – warehouses, down 12%; stores, down 14%; and offices, down 16%.  While the office category did include the start of a $200 million renovation and addition to a judicial building in Montgomery AL, it was not enough to avert a decline for the month.  On a year-to-date basis, the commercial categories showed this pattern – sharply lower activity for stores (down 25%) and warehouses (down 33%), a modest retreat for offices (down 3%), and more growth for hotels (up 34%) as the result of groundbreaking for a number of large hotel/casino projects this year.  Murray noted, “The credit crunch and weak economy in 2008 have had their most immediate impact on stores and warehouses, and some dampening is beginning to emerge for offices.  The current wave of financial market distress will lead to a more extended period of tight lending standards, further depressing the amount of commercial buildings expected to reach groundbreaking through 2009.”  Nonresidential building in August also included weaker activity for healthcare facilities, down 11%; and public buildings (courthouses and detention facilities), down 10%.

For the first eight months of 2008, the 15% drop for total construction compared to last year was the result of a 38% reduction for residential building.  Nonbuilding construction was unchanged from 2007, while nonresidential building advanced 5%.  Within the nonresidential building sector was a varied year-to-date performance – gains for institutional buildings, up 7%; and manufacturing buildings, up 66%; but a 10% drop for commercial buildings.  By geography, total construction in the January-August period of 2008 revealed weaker activity for the South Atlantic, down 27%; the West, down 25%; and the Midwest, down 11%.  The South Central was unchanged year-to-date, while the Northeast managed to edge up 1%.

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