Summer spike

New construction contract figures for August--the final "pre-Katrina" month--indicated an upward swing in construction activity, according to Lexington, Mass.-based McGraw-Hill Construction, a division of The McGraw-Hill Companies.

The upward push came from nonresidential building, which continued to strengthen after its weak volume earlier in the year. The construction industry's other two major sectors, residential building and non-building construction (or infrastructure), were essentially unchanged in August. During the first eight months of 2005, total construction on an unadjusted basis has been reported at $434.4 billion, a 7 percent gain versus the same period in 2004.

"The early reading for the third quarter showed construction starts still on a rising trend, prior to September and Hurricanes Katrina and Rita," remarks Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction." In the near term,that rising trend will be dampened by the disruption caused by Katrina and Rita, as the impacted areas in Louisiana, Texas, Mississippi, and Alabama focus on cleanup work. Going into next year, construction activity will get a boost from rebuilding efforts in the Gulf region."

Outside of the Gulf region, though, price pressures could have a negative impact. "A major uncertainty for the broader U.S. construction market is what effect the hurricanes will have on the price and availability of building materials," says Murray. "Further increases in the price of materials will make it more difficult for nonresidential building to maintain the improving trend that seemed to be taking hold during the spring and summer."

Activity in that sector in August rose 6 percent. Even the long-depressed manufacturing plant category soared 192 percent, thanks in large part to the start of a $900 million semiconductor fabrication plant in Arizona. Even without this large project, the manufacturing plant category would still be up 24 percent.

Hotel construction in August jumped 39 percent, led by the start of a $125 million hotel tower in Las Vegas and a $112 million hotel expansion in Seattle. The office building category registered a 10 percent advance, helped by the start of the $165 million Federal Reserve Bank building in Kansas City, Mo., and a $60 million corporate headquarters in Dallas. One downbeat note: Warehouse construction for the month fell 17 percent.

On the institutional side, the public building category (detention facilities and courthouses) increased 17 percent, while new contracts for health care facilities dropped 27 percent from an exceptionally strong amount in July.

The residential segment inched up 1 percent in August. Multi-family construction jumped 21 percent while single-family housing in August slipped 3 percent.

U.S. CONSTRUCTION CONTRACT VALUES

                          Jan.-Aug. 2005   Jan.-Aug. 2004   % Change

Residential                 $252.9 *           $225.8 *       +12%
Non-Residential Const.       111.9 *            113.4 *        -1%
Infrastructure                69.6 *             65.2 *        +7%
Toal                        $434.4 *           $404.4 *        +7%

Note: Table made from bar graph.

* in billions

Source: McGraw-Hill Construction

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