New construction starts in May dropped 2% to a seasonally adjusted annual rate of $460.8 billion, it was reported by the F.W. Dodge Division of The McGraw-Hill Companies (New York). Both nonresidential building and housing experienced a loss of momentum that was partially offset by continued expansion for public works and a surge of new power plant projects.

“At the outset of 2001, nonresidential building witnessed only a mild retreat, but its recent slide indicates that the sluggish economy and tighter bank lending standards are now exerting a more discernible dampening on this sector,” stated Robert A. Murray, vice president of economic affairs for F.W. Dodge. “At the same time, housing has held up reasonably well, and both public works and electric utility construction are maintaining their upward trend from the prior year.”

Nonresidential building in May dropped 9% to $151.4 billion. Large declines were reported for healthcare facilities (down 31%), warehouses and amusement-related projects (each down 26%), and hotels (down 19%). More moderate weakening was reported for stores and shopping centers (down 3%) and offices (down 2%). Murray stated, “May was consistent with the broader pattern for commercial building that’s emerging during 2001 — warehouses and hotels are seeing the greatest weakness, while stores and offices are experiencing a measured pullback. It’s true that the dot-com correction has generated concern about diminished demand for office space, yet so far the negative impact has been present in a few, but not all, office markets.”

Several nonresidential categories in May did show greater contracting. School construction, the largest nonresidential category by dollar volume, advanced 2% as it maintained its recent strength. Church construction was up 3%, while public buildings (courthouses and detention facilities) climbed 15%. Manufacturing plant construction also increased 2%, although its level continues to be very weak by the standards of the mid-1990s.

Nonbuilding construction in May climbed 21% to $105.0 billion. Most responsible for the increase was a surge for electric utility construction, which was up 210% over a comparatively subdued April. Five large power plants reached the groundbreaking stage in May—a $425 million project in Mississippi, a $350 million project in Illinois, a $267 million project in Washington state, a $200 million project in Florida, and a $133 million project in Oregon.

During the January-May period of 2001, total construction on an unadjusted basis was unchanged from a year ago. Nonresidential building trailed the previous year by 6%. By geography, two regions have seen total construction growth during 2001’s first five months — the South Central, up 5%; and the West, up 3%. The other three regions have lagged the previous year — the Northeast, down 1%; the South Atlantic down 2%; and the Midwest, down 3%.