Dodge Index shows slight slowdown of construction

New construction contracts for May were 3 percent lower for housing and public works with an slight rise in nonresidential building compared to April's reported activity level, according to the F.W. Dodge Division, a business unit of the McGraw-Hill Construction Information Group.

April's revised Dodge Index was recorded at 139, with May's registering 135. The lower May index designates a slower construction rate compared to 1998's first quarter, which registered an averaged index of 141, according to the Dodge news release.

Warm winter weather in February throughout the Midwest and Northeast gave way to an unusually high construction rate at the first of the year. The increase in housing construction during the first quarter was at a level too high to be maintained, said Robert A. Murray, vice president of economic affairs for F.W. Dodge, in the release.

However, not all of construction was at a decrease for May. An increase in nonresidential building was reported, compared to what was expected at this time for 1998, Murray stated.

Decreases in May construction appeared in residential building, with a drop of 6 percent to $151.7 billion.

A drop of 7 percent for single-family housing was reported, with a decrease of 3 percent for multifamily homes, the release stated.

Even with combined residential housing dipping 12 percent, May's data indicates a healthy construction rate equaling the average pace during 1997. The drop in construction for 1998 should level out if financing remains supportive and fixed mortgage rates stay near 7 percent, Murray said.

The South Central region remained unchanged from April's reported index, with a drop of 1 percent in construction for the Northeast. Regions in the Midwest decreased 4 percent, while the South Atlantic dropped 8 percent and the West dipped 12 percent.

Nonbuilding construction lowered 4 percent to $65.5 billion in May. Construction was reported at a decrease of 11 percent for highways, 13 percent for sewers, and river/harbor construction dropped 18 percent. Increases appeared for water-supply systems at 8 percent; bridges climbed 11 percent; and electric utility development doubled in May from its April activity, Dodge reported.

A negative effect on highway construction appeared in May due to the end of funding under a six-month interim federal highway legislation, Murray stated.

Highway construction slowed until a new multi-year bill, the Transportation Equity Act for the 21st Century, was implemented in June.

Murray added that the new bill contains a 40 percent increase in funds available for highway development over the next six years.

Nonresidential building increased 2 percent in May to $122.6 billion, with improvements of 29 percent for hotels, 12 percent for office construction and a rise of 8 percent for warehouse construction. Institutional categories also showing an increase included the development of public buildings, which climbed 25 percent, churches were up 14 percent, and a 10 percent increase was recorded for health care facility construction.

Decreases in nonresidential building appeared with a 8 percent drop in store construction; school development decreased 1 percent; and a 6 percent drop occurred in construction for manufacturing buildings.

For the fifth consecutive month, the drop in the index for the construction of manufacturing buildings indicates a growing concern for the effects of troubled Asian economies within the U.S., Murray said.

From May of 1997 to May of 1998 overall construction, on an adjusted basis, dipped 1 percent.

A 13 percent reduction in contracts from January to May for nonbuilding construction was indicated, with total nonresidential building at a decrease of 7 percent.

Compared to the index data from 1997, residential construction rose 8 percent.

During the January to May period, total construction geographically decreased 8 percent in the Northeast; a drop of 5 percent was reported in the West; the Midwest dipped 4 percent; and the South Atlantic and South Central recorded gains of 4 and 6 percent, respectively.

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Warm winter weather in February gave way to an unusually high construction rate at the first of the year. The increase in housing construction during the first quarter was at a level too high to be maintained.[[In-content Ad]]