New construction starts retreated 3% in December to a seasonally adjusted annual rate of $490.5 billion, it was reported by McGraw-Hill Construction Dodge, a division of The McGraw-Hill Companies. Both nonresidential and residential building were essentially steady, but nonbuilding construction (public works and electric utilities) fell sharply from the heightened contracting in November. For all of 2002, total construction advanced 1% to $498.7 billion. The modest gain in 2002 follows growth of 5% in 2001 and 6% in 2000.

"Total construction in 2002 essentially stabilized close to its 2001 level, as contracting continued to decelerate from the brisk pace of expansion several years ago," stated Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction Dodge. "While the rate of growth has diminished, the overall level of construction has held up reasonably well against the backdrop of the 2001 recession and the economy's fragile recovery in 2002. The big plus over the past two years has been the robust performance by single family housing, which has offset the weakness shown by commercial building. Also maintaining a strong pace have been institutional building, namely schools, and public works. However, the greater fiscal stress now being experienced by the federal and state governments is likely to dampen institutional building and public works to some extent in 2003."

Nonresidential building in December edged up 1%. Moderate gains were reported for stores, up 2%; warehouses, up 7%; and offices, up 16%, although hotels dropped 31%. Recent months have seen commercial building show more of an up-and-down pattern, versus the consistent downward trend that was present a year ago. The upturn for offices was aided by several large projects in smaller markets, including an $85 million renovation of a government office building in Albany, NY, and a $62 million office project in Sacramento, CA. The institutional sector in December was mixed, with increases for schools, up 10%; churches, up 25%; and amusement-related projects, up 62%. The latter was boosted by the start of a $136 million arena/exhibit hall in Des Moines, IA. Posting declines in December were public buildings (courthouses and prisons), down 10%; healthcare facilities, down 18%; and transportation terminals, down 42%.

For the full year 2002, nonresidential building dropped 10% to $151.9 billion. The most visible weakness was shown by the commercial categories -- warehouses, down 22%; hotels, down 25%; and offices, down 28%; in each case a greater percentage drop than in 2001. Murray noted, "Offices and warehouses were boosted by the tech boom in the late 1990s, and they have felt the impact of the tech correction most severely. With office employment continuing to be weak, as firms reduce staffing, it's expected that 2003 will see office vacancies rise further and rents erode. As a result, office construction will continue to weaken in 2003, although the rate of decline probably won't be as large as the previous two years."

During 2002, the office downturn in tech-related markets was substantial, including these dollar volume declines -- Seattle, down 50%; Boston, down 60%; San Jose, down 75%; and San Francisco, down 78%. In contrast to offices, hotels, and warehouses, the downturn for store construction in 2002 was a comparatively modest 7%, as its declining trend continues to be cushioned by greater construction activity from the more successful retail chains. The manufacturing plant category in 2002 weakened further, dropping 35% as businesses continued to keep investment on hold.

The institutional sector in 2002 began to slip back, as a 2% decline marked a departure from the steady growth witnessed over the previous five years. School construction, down 5%, retreated from the all-time high achieved in 2001, although the 2002 amount was still the second highest on record. Also showing declines were transportation terminals, down 4%; public buildings, down 6%; and amusement-related projects, down 7%. On the plus side, church construction continued to advance, rising 4%; and healthcare facilities jumped 12%. Murray noted, "Healthcare facilities have been boosted by the expansion programs of major hospital chains, as well as the continued strength for clinic construction."

The annual figures for total construction in 2002 showed growth in three of the nation's five major regions -- the South Atlantic, up 5%; the Northeast, up 4%; and the West, up 2%. Total construction in the Midwest was steady with the previous year, while the South Central fell 9%. The South Central witnessed continued strength for its housing sector, but commercial building experienced a steep drop in 2002, and the amount of new power plant starts in that region also fell sharply.