Depending on market sector, mixed results for nonresidential construction starts

The value of construction starts declined again in February, according to analysts from Reed Construction Data (RCD), continuing a trend of ebbing construction start totals that began in October 2007—and likely to continue through much of 2008.

But there’s light at the end of the tunnel. RCD forecasters believe that construction starts are progressively slowing and will continue to decline well into 2008. The consensus outlook anticipates a two-quarter recession with the economy expanding again by summer.

RCD reported the year-to-date value of construction starts through February, excluding residential contracts, totaled $39.2 billion, down 10.6% from the first two months of 2007.

February starts declined 12.7% month-over-month from January, more than the usual seasonal decline, but in line with the average 11.5% month-over-month change over the past five years. The slowdown now underway in the overall economy has already weakened consumer spending and cut employment. In the construction market, this is reflected in the relatively high year-to-date starts declines for manufacturing (-61%), commercial space other than retail (-49%), offices (-48%), and warehouses (-38%).

There are, however, a number of rapidly expanding sectors. These include military facilities (+308%), public safety buildings (+66%), laboratories (+56%), water and sewer projects (+48%), religious buildings (+46%), and libraries and museums (+34%). These projects are being funded with public budget reserves, donations, and investment earnings accumulated during the last three years.

Institutional projects, for the time being at least, are insulated from any immediate impact of changing economic conditions because of their use of bond and tax funding rather than short-term loans.

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