After a slight drop in June, groundbreaking on nonresidential construction projects jumped by more than 18 percent in July, buoyed by monthly increases in commercial and institutional starts. Compared to July 2012, however, starts are down by more than six percent, and year-to-date starts are down nearly 20 percent from the same period in 2012.

The value of nonresidential construction starts jumped 18.3 percent in July to $21.4 billion, after slipping 1.9 percent in June, according to a Reed Construction Data report. Despite the improvement, starts were down 6.6 percent compared to July 2012, and year-to-date starts data, which totaled $131.5 billion, was down 19.5 percent from the same period in 2012.

(Year-over-year comparisons are typically used to analyze construction starts to remove seasonal effects, since the data is not seasonally adjusted.)

Monthly commercial starts have varied considerably in recent months. In July, commercial starts grew 26.1 percent after plunging 43.8 percent in June. Year-to-date, commercial starts were down 6.2 percent from the same period last year. One positive within the category was retail starts, the largest niche in the group, which was up 8.8 percent in July and up 5.5 percent year-to-date. Private office starts, the next largest category, were up 22.6 percent from July 2012 and were up 4.1 percent on a year-to-date basis, despite a 21.9 percent decline from June to July.

Industrial (manufacturing) building starts are also showing major month-to-month fluctuations. After bounding 69.4 percent higher in May and advancing 2.7 percent in June, manufacturing starts fell 91.0 percent in July. Nonetheless, year-to-date starts were up 8.3 percent from the same period in 2012.

Institutional building starts leapt 37.0 percent in July after no change in June. On a year-to-date basis, however, starts were 18.8 percent lower. Construction activity for the institutional building category has struggled this year – January through June construction spending numbers for the group, reported by the Commerce Department, were down 7.3 percent from the same period in 2012. The outlook for the group remains poor in the near term, with starts for the largest spending category, schools and colleges, down 24.5 percent on a year-to-date basis even as July starts spurted 33.8 percent higher.

The lackluster performance of nonresidential building starts this year is due to the meager growth in the U.S. economy, with first quarter real (inflation-adjusted) growth in gross domestic product (GDP) of 1.1 percent. Second quarter growth of 1.7 percent was better but hardly stellar. Consequently, most companies have been reluctant to invest in new plant and equipment.