Construction starts dip slightly following year-end boost

The value of new construction starts in January receded 2 percent to a seasonally adjusted annual rate of $725.9 billion, easing slightly after December’s 13 percent hike, according to Dodge Data & Analytics.

The nonbuilding construction sector, comprised of public works and electric utilities and gas plants, pulled back 18 percent after surging 45 percent in December, as that month was boosted by the start of the $2.3 billion I-66 Corridor Improvements Project in northern Virginia and a $992 million transmission line project in California.

At the same time, nonresidential building edged up 1 percent in January, supported by groundbreaking for the $1.3 billion domed stadium in Las Vegas that will be the new home for the NFL’s Oakland Raiders once construction is completed prior to the 2020 season.

In addition, residential building climbed 7 percent in January, helped by a rebound for multifamily housing after three straight months of declines.

On an unadjusted basis, total construction starts in January were $52.2 billion, down 7 percent from the same month a year ago. On a 12-month moving total basis, total construction starts in the 12 months ending January 2018 were up 2 percent from the 12 months ending January 2017. The January statistics produced a reading of 154 for the Dodge Index, compared to December’s upwardly revised 156.

In 2017, the pattern of construction starts frequently showed an up-and-down pattern, which was present toward the end of last year when the Dodge Index fell to 138 in November followed by 156 in December. The 154 reading for the Dodge Index in January 2018, along with December’s 156, shows construction starts climbing back close to last year’s mid-range of activity.

For 2017 as a whole, the Dodge Index averaged 159.

“Although the expansion for the construction industry lost some momentum during 2017, on a broad level it can be characterized as deceleration as opposed to decline,” says Robert Murray, chief economist for Dodge Data & Analytics.  “January’s level of activity, which held close to last year’s mid-range, is consistent with the picture of a decelerating expansion. The factors affecting construction activity going forward in 2018 have become more varied. Some dampening may come from higher material prices and tight labor markets, yet while interest rates are rising the increases are expected to stay moderate this year.

“The tax reform legislation is anticipated to lift economic growth in the near term, which may benefit commercial building and manufacturing construction starts,” Murray adds. “The Trump administration has provided the outline of an infrastructure program, but the details need to be worked out by Congress against the backdrop of a growing federal budget deficit, which may limit any benefit this year for public works. One plus for 2018 is that the institutional side of nonresidential building should stay close to last year’s elevated pace.”