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February Construction Starts Drop Led by Institutional Projects

0 192 Market Intelligence

The value of construction starts increased 15.4% year to date through February 2010 from the same period last year. Starts fell 11% from January, slightly more than the usual 10% seasonal decline, but this may be due to unseasonably poor weather in February which contributed to 64,000 construction layoffs. However, job-site construction spending is down more than 10% from a year ago because the 50% fall in starts from August 2008 to June 2009 drained the pipeline of projects underway, says Reed Construction Data chief economist Jim Haughey.

The value of construction starts increased 15.4% year to date through February 2010 from the same period last year. Starts fell 11% from January, slightly more than the usual 10% seasonal decline, but this may be due to unseasonably poor weather in February which contributed to 64,000 construction layoffs. However, job-site construction spending is down more than 10% from a year ago because the 50% fall in starts from August 2008 to June 2009 drained the pipeline of projects underway. The amount of work underway will soon be expanding based on the 50% jump in starts since last June. This will lead to a rise in construction spending a few months ahead.

Commercial starts were steady in February allowing for the usual seasonal weakness after a nearly 50% jump in January. Office starts, private and government, jumped 29% but this was offset by declines in other commercial projects, especially hotel and retail. Monthly spending on commercial projects will continue to decline for much of 2010 until the pipeline of projects underway is rebuilt. The jump in office starts to the highest in 16 months matches recent unexpectedly good reports on office occupancy, rental rates and leasing.

Institutional building starts dropped 17% in February from January to the lowest level since the cyclical low in the building cycle in spring 2009. Healthcare and education starts both fell about 30% in February. The recession has finally arrived in institutional construction, although the large February fall much overstates the impact. The recession has forced hospitals to trim rate increases and provide more unpaid care. Similarly, K-12 schools now have reduced access to bond funds and colleges are trimming expansion and renovation to match 18 months of reductions in donations and capital fund balances.

Ahead, starts will rebound partially from the unusually low February level, but the amount of work underway and hence construction spending will inch lower into midyear. The delayed stimulus building funds will prevent an extended decline. However, the prospects for further stimulus construction appropriations in Washington have recently dimmed and can no longer be counted on to quickly halt the slide in institutional construction.

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by Jim Haughey

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