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Downward Spiral

New construction starts tumbled 9 percent in October to a seasonally adjusted annual rate of $471.6 billion, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies. Nonresidential building lost momentum, extending the downward trend which has recently emerged, while the lengthy erosion for residential building continued. Nonbuilding construction witnessed improvement for public works, but also a sharp retreat for the often volatile electric utility segment, resulting in a nonbuilding decline for October. During the first 10 months of 2008, total construction on an unadjusted basis came in at $475.2 billion, down 15 percent from the same time a year ago. Excluding residential building, new construction starts during the January-October period of 2008 still held onto a slight 1 percent lead over last year.

"As shown by October’s pattern, this year’s declining activity has broadened to include other project types besides housing," says Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. "The tight lending environment has grown even tighter with this fall’s turmoil in the financial markets, and we have yet to see its full impact on the commercial and institutional structure types, as well as public works. That impact will become more apparent in coming months. On the plus side, a second federal stimulus package may contain funding for infrastructure work, which would help to cushion the expected slowdown for public works next year."

Nonresidential building in October dropped 9 percent to $208.1 billion. The manufacturing building category plunged 69 percent from a September that included the start of a $1.6 billion addition to an oil refinery in Texas. The commercial categories showed a mixed performance in October. Store construction fell 20 percent from its September amount, and warehouse construction jumped 41 percent in a departure from the more general weakness shown this year. Office construction grew 5 percent in October, helped by the start of a $365 million federal administrative facility in Fort Meade, Md., and a $144 million office building in Oakland, Calif. Hotel construction registered 2 percent growth from a very weak September, although October remained well below the brisk pace registered earlier in 2008.

Residential building has continued its downward slide. At $143.7 billion, it was down 10 percent in October. Single family housing continued its lengthy slide, falling 11 percent, and has now seen decreased activity in nine out of the first 10 months of 2008. Multifamily housing in October dropped 10 percent, maintaining its own extended slide.

Nonbuilding construction dropped 6 percent in October to $119.8 billion. The reduced contracting reflected a sharp pullback for electric utilities, which plunged 46 percent from its heightened September pace. October still included the start of several large utility projects, including a $450 million geothermal energy plant in Utah and a $175 million wind farm in Illinois

For the first 10 months of 2008, the 15 percent drop for total construction compared to last year was due to this performance by major sector—residential building, down 38 percent; nonresidential building, unchanged; and nonbuilding construction, up 2 percent.