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New construction contracts down 5%.

May's rate of construction contracting declined 5 percent, it was reported by the F.W. Dodge Division of McGraw-Hill.

The latest month's data lowered the seasonally adjusted Dodge Index to 91 (1987= 100) from April's revised 96, as once again the construction industry was unable to show any significant response to this year's low mortgage rates. The industry's two largest sectors, non-residential and residential building, weakened in May; meanwhile, the non-building sector (public works and utilities) managed to show slight improvement.

"The construction industry seems to be stuck in a holding pattern for now," said Robert A. Murray, vice president of economic affairs for F.W. Dodge. "Whereas a few months ago the loss of momentum could be ascribed to harsh winter weather, the lackluster totals so far this spring are becoming more reminiscent of 1992's midyear doldrums. Apparently, uncertainty on the part of consumers and business is keeping a lid on this recovery. It's become increasingly doubtful that total construction in 1993, even with a second half pickup, will be able to match last year's 8 percent gain."

Residential construction was off 5 percent, falling back from April's modest rebound. Both single and multifamily contract values were down in May, and each of the nation's major regions witnessed reduced housing activity. May's seasonally adjusted volume was about 15 percent below what was reported at the end of 1992. Murray noted, "Single family housing is still the key to getting the construction recovery going again, but its slow start in 1993 is causing concern about just how much support can now be expected."

Non-residential building in May fell 9 percent, as the institutional categories slipped back from the modest strength revealed in the previous three months. After a particularly strong April total, construction of schools retreated to a level more consistent with what was reported during 1992. The overbuilt commercial categories stayed with the behavior shown over the past year and a half--dismal contracting for offices and hotels, but surprising resilience for stores and shopping centers.

"Since 1991, offices and stores have moved in divergent directions. Office contract value has fallen an additional 10 percent, while the turnaround for store construction, one of this year's few bright spots, has brought its current level of activity about 10 percent above what was averaged in 1991," Murray said.

Non-building construction advanced 4 percent in May, reversing April's modest slippage. Highway and bridge construction came through with its strongest total so far in 1993, offsetting a sharp decline for sewer and water projects. Added support came from the volatile electric power plant category, which bounced back from April's unusually weak rate.

At the end of 1993's January-May period, total construction on an unadjusted basis was down one percent from the same period a year ago. Regionally, the greatest weakness was shown by the West with an 8 percent decline, followed by 5 percent reductions in both the North Central and the Northeast. A stronger construction market was shown in the South Central region, up 8 percent, as well as the South Atlantic, up 7 percent.
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Title Annotation:reported by F.W. Dodge Division of McGraw-Hill Inc. for May 1993
Publication:Real Estate Weekly
Date:Jul 7, 1993
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