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Dec. 3, 2007: Construction Starts Decline in October

December 3, 2007
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NORCROSS, Ga. - Reed Construction Data announced that the year-to-date value of construction starts through October 2007, excluding residential contracts, totaled $254.8 billion, 13.4 percent higher than in 2006. However, the individual month of October was down 9.7 percent from September. October starts were 5 percent above the average month in the first quarter of this year, when starts dipped briefly before rebounding to record-high levels during the summer.

Reed stated that October is seasonally stronger than the winter months, so the recent starts decline is a serious sign that peak growth in this building cycle is now in the past. The American Institute of Architects (AIA) survey of “work on the boards” at architectural firms recorded a steep decline in August and September similar to the decline in February through April.

The month-to-month decline was 16.5 percent for heavy engineering projects, after five record-high months, and 6.6 percent for non-residential buildings. Commercial building starts were down 2.6 percent from September, but were off nearly 25 percent from the record-high level in June, before lenders began to raise mortgage rates and tighten credit standards. Starts of institutional buildings declined 13.2 percent from September and were 36 percent below the record-high July level.

Reed noted that the starts decline for heavy projects and institutional buildings is partly due to the failure of Congress to pass any appropriations bills for the new federal fiscal year that began on Oct. 1. The budget battle between Congress and the president likely means no final appropriations for a few more months. Thus, some of the decline is due to delays until funds are available.

The new fiscal year for states started strong on July 1, with record-high starts for institutional buildings in July and heavy projects in August. Reed said that public budget managers have become nervous about the tax revenue outlook in the wake of the turmoil in the financial markets. They are also concerned about the adequacy of highway trust funds, with the delay in additional federal money, and reduced fuel sales as a result of sharply rising prices. Some rebound in 2008 in both these markets should be expected when oil prices fall, federal appropriations are enacted, and states realize that they have underestimated tax receipts.

Publication date: 12/03/2007

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