March construction activity retreats 11 percent

Both single family housing and public works fell from the very strong contracting, reported at the beginning of 2002, while nonresidential building slipped back from more modest improvement.

"The pace of construction activity in January and February was unusually strong, aided by warm winter weather that helped to push forward the timing of construction starts," said Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. "The March decline in effect 'compensates' for the heightened activity at the start of 2002, so perhaps a better reading of the construction industry comes from looking at the average for the year's first three months. Total construction during the first quarter of 2002 proceeded at an annual rate of $501.0 billion, a 2 percent gain over both the previous quarter and the average for all of 2001. This is consistent with the sense that construction contracting is now leveling off, compared to last year's 4 percent gain, while still remaining at a reasonably healthy volume. At the same time, there would be mounting concern should the March rate of contracting be repeated in April and May."

Residential building in March fell 11 percent to $222.1 billion, as contracting receded from the very high levels in January and February. Single family housing in March was down 12 percent, while multifamily housing dropped 8 percent. The amount of residential construction was still brisk by recent standards, however, with March up 2 percent compared to the average for all of 2001.

Murray noted, "In particular, the single family statistics were extremely strong in early 2002, helped by both the actual number of starts and the seasonal adjustment performed on the data, so the March decline brings activity closer to a more sustainable pace. Over the next several months, single family housing may be dampened by the sluggish employment picture, but the low cost of financing should continue to support homebuyer demand." By geography, residential building in March showed this pattern - the Midwest, down 21 percent; the Northeast, down 14 percent; the South Central and the West, each down 8 percent; and the South Atlantic, down 7 percent.

Nonbuilding construction, at $96.2 billion, dropped 11 percent in March. Most of the public works categories witnessed reduced contracting compared to February.

Nonresidential building in March slipped 10 percent to $150.6 billion. The commercial categories featured declines of 23 percent for stores and 20 percent for hotels, while office construction was unchanged from February and warehouses advanced 10 percent. Construction of manufacturing plants plunged a sharp 51 percent after the improved amount in February.

The institutional side of the nonresidential market in March was mixed. School construction fell 11 percent, following its very strong contracting during the first two months of the year. Church construction was down 10 percent, while public buildings (courthouses and detention facilities) retreated 37 percent. On the plus side, both healthcare facilities and amusement-related projects registered 7 percent gains. The transportation terminal category jumped 71 percent, helped by the start of a $283 million reconstruction of the PATH train terminal in lower Manhattan (N.Y.), plus the start of a $77 million airline terminal expansion in Anchorage, Alaska.

During the first three months of 2002, total construction on an unadjusted basis was 1 percent below the same period in 2001. Pulling total construction downward was a 14 percent decline for nonresidential building compared to last year, outweighing gains of 9 percent for residential building and 3 percent for nonbuilding construction. On a regional basis, total construction in the January-
March period was the following: the South Atlantic, up 12 percent; the Midwest, up 6 percent; the Northeast, up 4 percent; the West; down 9 percent; and the South Central, down 13 percent.