New construction starts in June grew 4 percent from the previous month to a seasonally adjusted annual rate of $679.9 billion, according to Dodge Data & Analytics. Nonresidential building increased 13 percent in June, strengthening after two months of lackluster activity, and the nonbuilding construction sector rose 8 percent with the help of elevated activity for electric utilities. However, residential building slipped 4 percent in June, as both sides of the housing market (single-family and multifamily) retreated. Through the first six months of 2017, total construction starts on an unadjusted basis were $342.7 billion, down 4 percent from the same period a year ago. If the manufacturing plant and electric/utility gas plant categories are excluded, total construction starts during the first half of 2017 would be up 1 percent from last year.
June’s data lifted the Dodge Index to 144 (2000=100), compared to 138 for May. Even with June’s improved activity, the Dodge Index averaged 139 for the second quarter, down 10 percent from the first quarter’s 154 average. Since last year, total construction starts have shown an up-and-down pattern on a quarterly basis, including a 6 percent decline in the fourth quarter of 2016 which was then followed by a 7 percent increase in this year’s first quarter and now a 10 percent decline in the second quarter.
“A maturing construction expansion is characterized by deceleration in the overall rate of growth that’s often accompanied by up-and-down behavior on a quarterly or monthly basis,” stated Robert A. Murray, chief economist for Dodge Data & Analytics. “The 11 percent to 12 percent yearly increases for total construction starts during the 2012–2015 period were followed by a 4 percent gain in 2016, and several factors suggest that 2017 should still see modest growth for the year as a whole. These factors include commercial vacancy rates that remain low as well as greater construction funding coming from the state and local bond measures passed in recent years. At the same time, it’s become apparent that any impact from a new federal infrastructure program, should one get passed during the latter half of 2017, would benefit construction more in 2018 and 2019.
“The first half of 2017 has seen nonresidential building advance, reflecting further growth for office buildings and warehouses. Residential building so far in 2017 has been mixed, with some growth for single-family housing earlier this year, while multifamily housing appears now to be trending downward after peaking in 2016. On balance, the volume of construction starts so far in 2017 is slightly ahead of last year, if one excludes the often volatile manufacturing building and electric utility/gas plant project types.”
Nonresidential building in June was $249.6 billion (annual rate), up 13 percent from May. The commercial categories as a group climbed 23 percent, led by an 83 percent surge for new office building starts. Hotel construction in June jumped 62 percent. The other commercial categories lost momentum in June, with stores and shopping centers down 2 percent, warehouses down 19 percent, and commercial garages down 31 percent. The manufacturing building category in June increased 35
The institutional categories as a group were unchanged in June compared to May. On the plus side, educational facilities rose 16 percent in June; and the amusement and recreational category surged 58 percent in June. The public buildings category (courthouses, detention centers) and transportation terminals also contributed with June gains, rising 16 percent and 10 percent respectively. However, healthcare facilities plunged 39 percent in June, pulling back after a 40 percent hike in May. The religious buildings category also retreated in June, falling 38 percent.
Residential building was $274.9 billion (annual rate) in June, down 4 percent. Single-family housing slipped 4 percent, continuing to settle back in June from the strengthening that took place during the first two months of 2017. June’s pace for single-family housing was still 3 percent above the average monthly amount reported during 2016.
The 4 percent decline for total construction starts on an unadjusted basis during the January-June period of 2017 was due to reduced activity for nonbuilding construction, while residential building was flat and nonresidential building experienced moderate growth. Nonbuilding construction year-to-date fell 22 percent, with electric utilities/gas plants down 60 percent and public works down 4 percent. The “no change” for residential building year-to-date was the result of an 8 percent increase by single-family housing offsetting an 18 percent slide by multifamily housing. Nonresidential building year-to-date advanced 6 percent, with institutional building up 11 percent while commercial building held steady, combined with a 13 percent increase for manufacturing building that marks a change from this category’s steep retrenchment during 2015 and 2016.
