New construction starts in August retreated 1% to a seasonally adjusted annual rate of $514.2 billion, according to McGraw-Hill Construction Dodge, a division of The McGraw-Hill Companies. September showed a mixed performance by the construction industry's main sectors - nonresidential building lost momentum, housing was essentially steady at a high volume, while nonbuilding construction surged upward due to the start of three large power plants. Over the first nine months of 2003, total construction registered a 1% gain compared to the same period a year ago.

"New construction starts are now moving at a pace slightly above last year," stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction Dodge. "Residential building continues to be very strong, and the shortfall for nonresidential building and nonbuilding construction compared to last year has narrowed as 2003 has proceeded."

Nonresidential building in September retreated 7% to $132.4 billion. Modest slippage was reported for the two largest nonresidential categories by dollar volume - school construction, down 1%; and stores, down 2%. More substantial weakening was shown by health care facilities, down 7%; hotels, down 24%; warehouses, down 39%; and amusement-related projects, down 54% (compared to an August that included the start of a large sports arena in Arizona).

September featured improved contracting for churches, up 3%; public buildings (courthouses and detention facilities), up 8%; and office buildings, up 15%. The gain for the office category reflected the start of a $153 million state office complex in Sacramento, CA, a $125 million renovation of a federal office building in Maryland, and a new $63 million state office building in St. Paul, MN. Large percentage gains were also reported for manufacturing buildings, up 48%; and transportation/freight terminals, up 53%; with both of these categories advancing from very depressed contracting in August.

During the first nine months of 2003, nonresidential building was down 4% compared to 2002. A number of institutional structure types witnessed reduced activity - transportation/freight terminals, down 2%; health care facilities, down 7%; public buildings, down 8%; amusement-related projects, down 9%; and churches, down 14%. School construction showed steady contracting in dollar terms, helped by a heightened amount of renovation work, although square footage for new school buildings dropped 7%.

Manufacturing plant construction in the first nine months of 2003 was also unchanged from 2002, marking a change from the steep declines that were reported in the previous five years. For the commercial structure types, decreased construction was shown by offices, down 10%; and warehouses, down 20%. On the plus side, stores grew 8% in the January-September period, while hotels jumped 17% with the help of several large projects related to casinos and convention centers.

Murray noted, "The improved contracting for stores and hotels in the first nine months of 2003 is a good sign that commercial building is finally turning the corner, following the declines of 2001 and 2002. At the same time, the employment picture must strengthen in the coming months in order for office construction to see any sustained improvement."

The 1% increase for total construction during the January-September period of 2003 was the result of this pattern by region, relative to 2002 - the West, up 5%; the South Central, up 4%; the South Atlantic and the Midwest, each up 2%; and the Northeast, down 13%. The downturn in the Northeast reflects a steep correction by its nonbuilding construction sector, combined with widespread nonresidential declines and only a small increase for housing compared to the other regions.