Construction turning an extended corner

The value of new U.S. construction starts in July advanced 7 percent to a seasonally adjusted annual rate of $411.2 billion, according to an Aug. 20 report by McGraw-Hill Construction.

Gains were seen in nonresidential building (up 3 percent), which continued to see improvement after extremely depressed activity earlier in the year, and non-building construction (public works and utility projects) bounced back following a June slide.

Meanwhile, residential building lost momentum in July, as McGraw-Hill said the housing recovery “paused for an additional month.”  For the January-July period of 2010, total construction starts on an unadjusted basis came in at $238.0 billion, down 4% compared to the same period a year ago.  The July rate of nonresidential construction was also down 33 percent from the monthly average in the peak year of 2008.

“The pace of contracting over the past year has essentially stabilized at a low level, and July showed activity moving back up towards the middle of its recent range, following June’s weak performance,” stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction.  “Nonresidential building seems to be leveling off after the substantial declines witnessed over the past year, and in a few cases projects that were deferred are now reaching groundbreaking.

“Still, given the negatives of tight bank lending, sluggish employment, and the diminished fiscal position of states and localities, a sustained recovery for nonresidential building remains several quarters away, at least.  The public works sector continues to show generally healthy activity, supported by financing from ongoing federal programs as well as stimulus funds. “

Murray said housing construction “is in the midst of a pause” from the earlier improvement shown during the latter half of 2009 through the first quarter of 2010.

“In effect,” he said, “the volume of total construction starts appears to be in the process of ‘turning the corner,’ after the steep decline reported in 2009, but the turn is assuming an extended U-shaped pattern.”  Nonresidential building in July increased 3% to $160.0 billion (annual rate), moving up for the third straight month after very weak activity in April.

By geography, total construction starts during the first seven months of 2010 compared to last year were reported as follows – the Northeast, up eight percent; the South Central, down 1percent; the Midwest, down 5 percent; the South Atlantic, down 6 percent; and the West, down 13 percent.