Construction up in March.

Contracting for new construction in March climbed one percent over the previous month, it was reported by the F. W. Dodge Division of McGraw-Hill. With the value of residential contracts holding steady, a sharp rise for non-residential building outweighed a retreat for non-building construction (public works and utilities).

The latest month's data raised the seasonally adjusted Dodge Index to 110 (1987 = 100), up from February's revised 108 and equaling the 1993 high reached in October. Following October's peak, the Index had experienced modest slippage in falling to January's 106, before rebounding in the subsequent two months.

"Whereas housing led the construction recovery in the 1992-93 period, the early months of 1994 have seen support coming from other sectors," said Robert A. Murray, vice president of economic affairs for Dodge. "This pattern of activity - more public works projects in February and a surge of non-residential building in March - might be characterized as 'so far so good' with regard to 1994's prospects, since broader participation is just what is required to keep the expansion going this year. But the recent jump in mortgage rates has added a new element of uncertainty to this year's picture, with the near term impact on housing yet to be seen."

Non-residential construction in March climbed 14 percent, showing acroos-the-board strengthening in its commercial, industrial, and institutional components. The annualized dollar amount of contracting, at $98.3 billion, was the strongest rate since July, 1990, and provided a good measure of this market's improving status. Commercial building bounced back from a lackluster February, led by a further gain for the already strong store and shopping center category. Offices alos contributed with a sharp upturn, helped by the inclusion of several large projects in March's data. Murray noted, "While the office market is still very depressed by mid-1980s standards, its meager volume of the past few years is now allowing it to show an occasional healthy gain, at least in percentage terms."

March also witnessed further growth for the institutional building categories, particularly school construction, giving firmer evidence that this sector is finally moving beyond the sluggish pace of the past two years.

Residential construction was unchanged in March from its February total.

The value of single-family starts slipped back slightly, but a rebound by multi-family housing from an especially weak February made up the difference. Regionally, earlier strength shown by the South Atlantic, South Central, and the West subsided, while the Northeast and Midwest registered gains. Murray noted, "It's too early to see much of an impact of higher mortgage rates in the housing data, so the reports of the next few months bear close scrutiny. Just how much pent-up demand a stronger economy can offset more costly financing is a critical issue, since a decelerating housing market will cut into the gains expected by construction's other sectors."

Non-building construction, following the burst of activity reported in February, fell back 12 percent in returning to a more sustainable pace. February drew support from the start of several large power plant projects, so a more "typical" month in March resulted in a two-thirds decline for utilities. The public works categories eased back a manageable 3 percent - still remaining 8 percent above the average rate posted by this sector in 1993. Highway construction in particular this year is benefiting from the greater funding available from the current transportation legislation.

At the end of three months, total construction contract value on an unadjusted basis was up 9 percent over the same period a year ago. The West led all regions with 21 percent improvement compared with its weak first quarter last year, while the Midwest was second with a gain of 17 percent. January-March activity in the South Central advanced 12 percent, while the South Atlantic rose a more subdued 3 percent. The Northeast, adversely affected by harsh winter weather, was down 13 percent from 1993's first three months.