Bedford, MA - June 16, 2009 - At a seasonally adjusted annual rate of $412.3 billion, new construction starts in May advanced 7% from the previous month, according to McGraw-Hill Construction, a division of The McGraw-Hill Companies. May’s strengthening was led by a substantial increase for public works, which featured a major pipeline project as well as gains for highways, bridges, sewers, and water supply systems. Meanwhile, housing stayed flat and nonresidential building resumed its downward trend after the brief upturn reported in April. [ Table for Monthly Summary of Construction Value ]

The May statistics lifted the Dodge Index to 87 (2000=100), compared to 82 for April. The pace of new construction starts had fallen steadily from mid-2008 through February, but since then has shown slight if hesitant improvement. However, the level of activity registered during March, April, and May remains quite weak by recent standards – up 4% from the average for January and February, yet still down 10% from last year’s fourth quarter. “The pattern of construction starts over the past three months suggests that a bottom is being established,” stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. “Single family housing now seems to be leveling off after its lengthy correction, and public works is picking up speed, with more to come given the lift that’s just beginning to emerge from the federal stimulus funding. This will be offset, however, by further weakness for nonresidential building, involving its commercial, manufacturing, and institutional segments.”

Nonbuilding construction in May surged 28% to $149.1 billion (annual rate). The “miscellaneous” public works category (including such project types as pipelines and rail work) soared 91%, with the push coming from $2.5 billion related to segments of the Keystone oil pipeline project covering the states of South Dakota, Nebraska, Kansas, Missouri, and Illinois. If this massive project is excluded from the May statistics, then the 28% increase for nonbuilding construction would be reduced to a 2% gain, and the 7% increase for total construction would become a 1% decline. The “miscellaneous” public works category in May was also helped by the start of a $315 million mass transit rail line extension in Miami FL. Aside from May’s strength for pipeline and rail work, May also included gains for other types of public works. On the transportation side, highways advanced 12% while bridges climbed 54%, with the latter helped by the start of a $366 million bridge renovation project in New York NY. On the environmental side, growth was reported for sewers and water supply systems, up a respective 13% and 12%, but river/harbor development fell 32% after heightened April activity. Electric utility construction in May grew 5%, aided by the start of a $382 million transmission line project in Virginia and West Virginia, as well as by the start of a $200 million wind farm in Iowa.

Residential building, at $102.8 billion (annual rate), was essentially unchanged in May from the previous month. Single family housing in May grew 2%, and has now shown improvement in dollar terms for four straight months. Even with this improvement, the volume of activity continues to be very weak, with May down 28% from the monthly average for 2008, itself a depressed year for single family housing. “Recent months have offered more evidence that single family housing has reached bottom, whether looking at the level of starts or home sales,” noted Murray. “While this represents a noteworthy change from the steady declines that were reported over the past three years, the large amount of home foreclosures still underway will continue to weigh down the single family market for some time.” By region, single family housing in May showed gains in the Midwest, up 14%; the South Central, up 6%; and the Northeast, up 2%; but declines in the West, down 2%; and the South Atlantic, down 6%. Offsetting the modest increase for single family housing in May was a 13% decline for multifamily housing. While single family housing appears to be reaching bottom, the same has not yet occurred for multifamily housing, which has registered declines in eight out of the past ten months.

Nonresidential building in May dropped 4% to $160.4 billion (annual rate). Much of the weakness for nonresidential building took place on the institutional side, as school construction fell 8% and healthcare facilities plunged 35%. The healthcare facilities category in the first three months of 2009 showed diminished contracting after a record 2008, followed by a brief rebound in April. The pullback in May indicates that the downward trend for healthcare construction has resumed. Amusement-related projects, such as theaters and sports arenas, retreated 23% in May. Several institutional categories reported greater contracting in May, such as churches, up 27%; transportation terminals, up 37%; and public buildings, up 51%. The public buildings category in May was supported by the start of two large courthouse projects in Florida ($224 million) and New York ($173 million), and two large detention facilities in Alabama ($184 million) and New York ($133 million). The manufacturing plant category had a particularly weak May, sliding 61%.

The commercial categories in May ran counter to their downward trend that’s been underway over the past year. Store construction, which has seen a particularly steep drop after peaking in 2007, held steady in May. Both warehouses and hotels showed gains from very weak April activity, with warehouses up 5% and hotels up 31%. Office construction in May climbed 51%, lifted by the start of a $347 million office tower in New York NY and a $99 million officer tower in Seattle WA. The volume of office construction in May was still depressed relative to the past year, as it came in 35% below the monthly average for this category in 2008.

On an unadjusted basis, total construction during the January-May period of 2009 was reported at $154.2 billion, down 38% from the same period a year ago. The year-to-date declines are likely to stay substantial through mid-year, but then become less severe during the second half of 2009 given the comparison to the sharp erosion in construction activity that took place in the second half of 2008. By sector, nonbuilding construction for the first five months of 2009 showed a relatively small decline, retreating 14%. The downturns for the other two sectors were considerable –residential building, down 49%; and nonresidential building, down 43%. By region, total construction during the first five months of 2009 showed the largest reductions in the Northeast, down 45%; and the South Atlantic, down 41%. Not far behind were the West, down 39%; the South Central, down 34%; and the Midwest, down 29%.

Added perspective is made possible by looking at twelve-month moving totals, in this case the twelve months ending May 2009 versus the twelve months ending May 2008. On this basis, total construction is down 25%, with the smallest decline by sector shown by nonbuilding construction, down just 1%. Larger declines were reported for residential building, down 43%; and nonresidential building, down 23%. By region, the twelve months ending May 2009 showed this performance for total construction versus the prior twelve months – the South Atlantic, down 34%; the West, down 31%; the Northeast, down 26%; the South Central, down 16%; and the Midwest, down 15%.