New construction starts climb 10 percent

New construction starts in February advanced 10 percent compared to the previous month, according to Dodge Data & Analytics, producing a reading of 141 for the Dodge Index. The index was 129 in January.

Much of the lift in February came from the nonbuilding construction sector, as its electric power and gas plant category included a $3 billion segment of a liquefied natural gas (LNG) export terminal in Texas, as well as the start of six power plant projects valued each in excess of $200 million.

Nonresidential building also helped out in February with a moderate gain, resuming its hesitant upward track after the lackluster activity reported at the outset of 2016, Dodge Data reports.

However, residential building settled back in February following its improved January performance. For the first two months of 2016, total construction starts on an unadjusted basis were $87.1 billion, down 16 percent from the same period one year ago. That period featured the start of several massive LNG terminal projects.

“The month-to-month pattern of construction starts will often reflect the presence of unusually large projects, and this explains February’s gain relative to January,” says Robert A. Murray, chief economist for Dodge Data. “It also helps to explain the elevated and unsustainable pace of total construction starts during the early months of 2015, and by comparison the substantial year-to-date declines for nonbuilding construction and nonresidential building so far in 2016.”

According to Dodge Data, the first two months of 2015 brought 13 projects valued at $500 million or more that reached the construction start stage. Five such projects have emerged during the first two months of 2016.

“The current economic environment is still favorable for the continued expansion of construction activity, which may not show up in the year-to-date statistics for total construction starts until the second half of this year,” Murray says. “Interest rates continue to be low, more construction-related bond measures have been passed at the state and local government level, and the new multi-year federal transportation bill is in place.

“While there are signs that banks are beginning to tighten standards on commercial real estate loans, at the urging of federal bank regulators, market fundamentals such as occupancies and rents remain generally supportive of new construction,” Murray adds.