New construction starts slip downward

New construction starts in November retreated 6 percent from October at a seasonally adjusted annual rate of $638.3 billion, according to Dodge Data & Analytics.

Each of the three major construction sectors experienced reduced activity in November, the firm says. Nonresidential building continued to recede from its elevated September pace, even with the November start of several large projects, most notably the $3 billion new football stadium for the Los Angeles Rams in Inglewood, California.

Residential building in November settled back after strengthening in October, maintaining the up-and-down pattern that’s been present since August. Also, nonbuilding construction in November declined after its public works segment had been lifted in October by the start of several large projects, including the $1.7 billion Mid-Coast Corridor Transit Project in San Diego and the $850 million State Highway 288 Tollway project in the Houston area.

For the first 11 months of 2016, total construction starts on an unadjusted basis were $627.2 billion, essentially matching the amount reported for the same period a year ago. During the second half of 2016, the year-to-date performance for total construction starts has shown consistent improvement, even with the recent deceleration, given the comparison to the weaker activity reported during last year’s second half.

Excluding the volatile manufacturing plant and electric utility/gas plant categories, total construction starts during this year’s January-November period would be up 4 percent.

The November statistics lowered the Dodge Index to 135 (2000=100), down from a revised 143 for October.  While the Dodge Index has retreated from its most recent high of 154 in August, the November reading was still 7 percent above this year’s low of 126 in July.

“The path of expansion for construction activity has been hesitant in recent years, with gains followed by setbacks, and this has certainly been true during 2016,” says Robert A. Murray, chief economist for Dodge Data & Analytics.  “After a lackluster second quarter, total construction starts showed improvement during the third quarter and have receded so far during the fourth quarter. On the plus side, the year-to-date amount for nonresidential building in dollar terms is now showing growth, joining the gains that have been reported for residential building over the course of 2016. The public works sector remains slightly lower than a year ago, although the extent of its shortfall has become smaller.

“Going forward, the construction industry should still benefit from several positive factors,” Murray adds. “For commercial building, vacancy rates have yet to show much in the way of upward movement.  For institutional building, funding support for school construction is coming from the passage of such recent state bond measures as the $9 billion Proposition 51 in California. For residential building, while mortgage rates have risen they remain at historically low levels for the present, and demand for housing from millennials seems to be picking up. For public works, support is coming from recent bond measures passed at the state level, although the continuing resolution just passed by Congress for fiscal 2017 federal appropriations did not provide an increase for highway funding. What remains to be seen is the extent to which Congress will respond to the proposals by the incoming Trump administration for greater infrastructure spending and less regulation of the banking sector.”

Dodge Data & Analytics is a technology-driven construction project data, analytics and insights provider.