New construction starts climb 13 percent

New construction starts in October advanced 13 percent to a seasonally adjusted annual rate of $591.1 billion, according to Dodge Data & Analytics.

The increase follows the lackluster performance for construction starts during August and September, when activity fell to the lowest levels reported so far in 2015, according to the firm. Much of October’s gain for total construction was due to a sharp rebound by nonresidential building, with additional support coming from a moderate upturn for housing as the result of further strengthening by multifamily housing.

At the same time, the nonbuilding construction sector settled back in October, reflecting a decreased amount of power plant projects. During the first 10 months of 2015, total construction starts on an unadjusted basis were $551.9 billion, up 10 percent from the same period a year ago. Leaving out the volatile electric utility and gas plant category, which was boosted in early 2015 by the start of several massive liquefied natural gas (LNG) terminals, total construction starts during the first 10 months of 2015 would be up 4 percent relative to last year.

October’s data raised the Dodge Index to 125, compared to 111 in September.

“The healthy increase for construction starts in October alleviates concern about a stalling expansion that may have arisen with the sluggish activity in August and September,” says Robert A. Murray, chief economist for Dodge Data & Analytics. “The construction start statistics do show volatility on a month-to-month basis, and as a result trends in the near term are rarely smooth.

“On balance, though, factors within the economic and political environment still point toward the continued expansion for construction. For the nonresidential building market, the primary drivers for its commercial and institutional building segments remain positive.”

According to Murray, the U.S. economy continues to register moderate job growth, vacancy rates are receding, rents are rising, and construction-related bond measures at the state level are getting passed.

“For residential building, multifamily housing is still a target for investors while Millennials are lifting the demand for apartments,” he says. “For public works, there’s been solid progress made by Congress toward finalizing the next federal multiyear transportation bill and there’s less uncertainty with the selection of Paul Ryan as the new Speaker of the House of Representatives, although fiscal 2016 appropriations still need to be passed.”