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The U.S. construction industry's house appears to be built on solid ground, at least as indicated statistically in the first two months of 2005.

Statistics compiled by McGraw-Hill Construction, Lexington, Mass., show new construction starts in the first two months of 2005 being virtually identical to total spending in the first two months of 2004. There are differences within segments, however, as residential building continues at a healthy pace, infrastructure spending is upfrom 2004, but non-residential building has slowed considerably compared to last winter.

For the first two months of 2005, total construction on an unadjusted basis amounted to $78.9 billion, basically the same amount reported during the first two months of 2004.

"Total construction in 2005 is not likely to repeat the 10 percent growth witnessed in 2004, but the overall level of activity is still expected to stay close to last year," predicts Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. "Eventually, higher interest rates will dampen single-family housing, and, even with its lackluster start to 2005, nonresidential building is anticipated to pick up some of the slack as the year proceeds."

In the residential segment, single-family housing advanced, the cost of financing has remained very supportive for single-family housing, but that situation may be changing. In March, long-term interest rates began to move upward, with the 30-year fixed rate reaching 6 percent toward the end of the month. Murray noted, "It will take a while for higher mortgage rates to dampen home buyer demand, as 'fence-sitting' homebuyers jump into the market, but further rate increases will eventually restrain the housing market." Multi-family housing in February was helped by a large volume of condominium work in places such as Florida, New York City and Las Vegas.

The infrastructure segment, which includes highways and bridges, climbed 11 percent in February. Although highway spending was up just 1 percent in February, new bridge construction soared 26 percent with the help of large projects beginning in Virginia ($89 million), Florida ($69 million and $58 million), Arizona ($51 million), Nevada ($51 million) and California ($40 million). "One positive for highway and bridge construction going forward is that Congress has made progress on the next multi-year federal transportation bill, with measures passed by a Senate committee and the full House that are close to the $284 billion funding proposed by the Bush Administration," says Murray. Strong gains in February were also registered by river/harbor development, up 24 percent; and sewers, up 61 percent. The sewer category (up 61 percent in February) was boosted by the start of four projects in New York City totaling a combined $470 million, plus a $56 million sewage processing facility in Georgia.

The non-residential building has slowed across several of its segments in early 2005. In February, reduced contracting was reported for stores (down 7 percent), offices (down 10 percent) and warehouses (down 26 percent). Manufacturing plant construction plunged 59 percent from an unusually strong January that included the start of a large semiconductor plant in Texas. The institutional side of the non-residential market is also fairly weak across the board, with church spending down 10 percent, healthcare facilities spending down 20 percent and public buildings (courthouses/detention facilities), down 44 percent in new start value.

Among the non-residential structure types that registered growth in February were educational buildings (up 8 percent) and hotel construction, which grew 11 percent after some disappointing months.

On an unadjusted basis, by geography, total construction performed as follows in 2005's first two months: the South Central, up 11 percent; the South Atlantic, up 2 percent; the West and Northeast, each flat compared to 2004; and the Midwest, down 15 percent.

U.S. CONSTRUCTION CONTACT VALUES

                       Jan.-Feb. 2005      Jan.-Feb. 2004     % Change

Residential                $46.2 *             $43.8 *           +16%

Non-Residential
Const.                      18.9 *              22.4 *            +3%

Infrastructure              13.7 *              12.6 *            +1%

Total                      $78.8 *             $78.8 *            +9%

* in billions

Source: McGraw-Hill Construction

Note: Table made from bar graph.