Reed Construction Data announced that the value of nonresidential construction starts in its database for January-October 2006 totaled 8.6% higher than in the first 10 months of 2005. Allowing for construction cost inflation, the real volume of new starts has increased about 2% so far in 2006 compared to the same period in 2005, Reed Chief Economist Jim Haughey estimated. “The record-high October starts were 7% higher than a year ago and 23% above September….Hotels, amusement and recreation facilities, hospitals and nursing homes, laboratories and bridges continue to be the fastest-growing construction sectors in 2006. Large monthly increases from September were also recorded for warehouses, library and museum buildings and highway, road, water, sewer and other civil projects. October starts for non-building projects were 45% higher than the average for the first nine months of 2006. The huge October gain is not sustainable. It was partly due to normal seasonal improvement and partly due to the return of projects delayed during the spring and summer, now that costs have stopped rising for cement, asphalt and structural steel and have fallen for aggregates. The office market continues to lag the rest of commercial construction, due to high vacancy rates in most major markets. October starts fell 24% from an unusually high September total and are up only 7% year to date compared to the same period in 2005.”
Companies have made varied announcements about construction and other capital spending plans recently. USA Today reported, “State regulators gave approval to Nevada's electric utilities to develop the largest power plant in the state and 250 miles of transmission…a $3.7 billion project…” The Wall Street Journal reported, “Home Depot is spending $350 million on its stores…Lowe's meanwhile, already has invested a lot of money on remodeling its stores and increased staff. Danielle Fox, retail analyst at Merrill Lynch, thinks Lowe's…is going to significantly pare back expenses going forward.” Another Journal story reported, “Bucyrus International Inc., a maker of huge mining machines in South Milwaukee, Wisconsin, says it is on track to spend $135 million this year and next on [factory] expansions, and sees no reason to cut back. [Wal-Mart Stores Inc.] said recently it was responding to a slowdown in the rate of sales growth by cutting spending on new stores and distribution centers. Wal-Mart's capital spending will grow between 2% and 4% next year, the company said, down sharply from the 15% to 20% increase this year. Similarly, Intel Corp….has said it will trim $1 billion in capital spending as part of broader cost cuts….Amazon.com Inc. [last month] said it was slowing its rate of investment in new projects.”