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Construction lagging in recovery, say contractors.

So far in 2004, building construction has been the wallflower of the economic dance.

Worse, the projects underway have been hit by a variety of unexpected price shocks, said Ken Simonson, chief economist Associated General Contractors of America.

The economy is showing the strongest momentum in years. The broadest measure of economic growth, the rate of change in real (net of inflation) gross domestic product, accelerated from a seasonally adjusted annual rate of 1.3% in the final quarter of 2002 to 2.5% in the fast half of 2003 and 6.1% in the second half. That was the fastest half-year since 1984. Growth continued at a brisk 4.4% clip in the first three months of 2004.

There is every reason to expect the good news to continue through 2004, based on recent signs, including a 248,000 employment hike, a 9% increase in retail and food services sales and a steady incline in new-home sales, starts, and permits in the fast four months of 2004.

The value of construction put in place also climbed 1.3% in April to $970 billion at a seasonally adjusted annual rate, the third straight monthly record; the four-month total is 8% higher than in 2003.

However, these strong results have not translated into an upturn for beleaguered building construction segments.

Construction put in place reached new heights in seasonally adjusted annual totals, thanks to new peaks for housing and public nonresidential construction.

In contrast, private nonresidential construction, at a seasonally adjusted annual rate of $219 billion in April, was 18% below than the peak year's total of $268 billion, set in 2000.

This dismal record reflects a number of separate influences, each of which will reverse on its own cycle. Here is a rundown of some major building construction markets.

In its monthly tallies of the value of construction put in place, the Census Bureau separates nonresidential construction into 18 categories, the largest of which ($71 billion out of $427 billion total nonresidential construction in 2003) is "educational construction."

This category comprises several different components: state and local primary/secondary ($38 billion in 2003), state and local higher education ($14 billion), private higher education ($7 billion), private primary/ secondary ($3 billion), and several smaller components (federal; state and local library/archive and other; private gallery/museum, preschool, and other). In January-April 2004, both public and private educational construction were nearly level with the same period of 2003.

Public primary/secondary educational construction tripled from 1994 to 2002 before dropping 3% last year. This component should continue to benefit from the rise in property values, which means higher revenues for school districts that depend on real property taxes, and from the high rate of building, which carries with it a demand for schools near the new homes.

The second largest nonresidential building category is commercial construction ($61 billion in 2003, of which more than 90% is private; the remainder is mainly public garages and warehouses).
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Publication:Real Estate Weekly
Geographic Code:1USA
Date:Jun 30, 2004
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