Construction contracts up for 2nd month.

Construction contracts up for 2nd month

Contracting for new construction rose 4 percent in August, it was reported by the F. W. Dodge Division of McGrawHill. The latest gain followed a 7 percent advance in July.

These back-to-back gains lifted the seasonally-adjusted Dodge Index (1982 =100) to 150 in the latest month, a recovery of 13 percent from January's recession low.

New construction starts for August were paced by a 12 percent improvement in commercial, industrial, and other nonresidential projects. Contracting for residential buildings advanced another 4 percent in the latest month, while "nonbuilding" construction (public works and utilities) declined 9 percent.

"The Fed's latest move to cut interest rates will stimulate building in the months ahead only if bankers become more willing to grant construction loans," noted George A. Christie, vice president and chief economist for F. W. Dodge. "Ironically, lenders, already wary of real estate investment, will find it even less attractive at a lower return."

After two months of extremely low nonresidential contracting, August's 12 percent rebound brought improvements in commercial and institutional building. "The nonresidential side of the construction market will have as many downs as ups for another year or so," Christie cautioned. "This is typically the last sector to recover from the effects of recession."

Residential building continued to edge upward in the latest month with modest gains in both single and multifamily housing. In contrast to non-residential building, which has been erratic this year, housing's steady improvements has lifted the value of contracting by 30 percent since January.

Nonbuilding construction is occasionally influenced by one or two jumbo projects as was the case recently. July's value was distorted by the start of a large utility project. Therefore, the return to a normal level of contracting in August meant an inevitable "decline" of 9 percent. "The fact that total construction contracting continued to increase in August while absorbing this void is a sign that underlying market conditions are improving," the Dodge economist said.

At the end of eight months, the unadjusted value of 1991 contracting for new construction was $152.5 billion, a decline of 12 percent from the same period of 1990. The spread between 1991 and 1990 has been narrowing steadily, from -22 percent at the end of the first quarter, to - 16 percent through midyear, to the current - 12 percent. It is now estimated that full year 1991 construction contract value will reach $226.5 billion, a decline of 8 percent from 1990's $245.4 billion.