At a seasonally adjusted annual rate of $708.1 billion, new construction starts in February slipped 3% from the previous month, according to a Dodge Data & Analytics report out Thursday.
The reduced activity in February followed a 2% decline in January, as the early months of 2018 are showing some loss of momentum after the 12% increase reported back in December. The non-building construction sector, comprised of public works and electric utilities/gas plants, fell 23% in February, resulting in the decline for total construction starts for the second month in a row. In contrast, nonresidential building grew 5% in February, continuing the strengthening trend which resumed in December, and residential building improved a slight 1%.
During the first two months of 2018, total construction starts on an unadjusted basis were $102.4 billion, down 7% from the same period a year ago which had been lifted by the start of several unusually large projects, including the $3.6 billion Central Terminal replacement project at LaGuardia Airport in New York NY. On a twelve-month moving total basis, total construction starts for the twelve months ending February 2018 were up 2% from the twelve months ending February 2017.
The February statistics produced a reading of 150 for the Dodge Index (2000=100), compared to 154 for January. "The 152 average for the Dodge Index during the first two months of 2018 is the same as the 152 average reported for the fourth quarter of 2017, as the pace of construction starts viewed over several months seems to have leveled off," stated Robert A. Murray, chief economist for Dodge Data & Analytics. "What's important to keep in mind is that the moderately subdued amount for total construction starts during the first two months of 2018 reflects diminished activity by public works and electric utilities, which given their inherent volatility are likely to bounce back over the next month or two. Compared to last year's fourth quarter, the first two months of 2018 have seen further increases for nonresidential building, helped by its institutional building segment, and residential building, helped by multifamily housing. This suggests that the construction expansion, while slowing, is still in progress."
"It's true that the construction industry is now seeing more headwinds," Murray continued. "Material prices have risen over the past year, and the tariffs on steel and aluminum announced by the Trump Administration will lead to further price hikes. The Federal Reserve is tightening monetary policy, and concerns about inflation by the financial markets have contributed to rising long-term interest rates. The prospects of an infrastructure program getting passed by Congress this year remain uncertain, against the backdrop of a mounting federal budget deficit. At the same time, the economy is expected to get a near term lift from tax reform, which would benefit commercial and manufacturing building, while funding from recent bond measures will support such institutional project types as school construction. On balance, the rate of growth for total construction is decelerating, but activity for 2018 is expected to stay at a relatively healthy amount."
Residential building in February was $343.3 billion (annual rate), up 1% from January. Multifamily housing increased 7%, reflecting the start of eleven projects valued each at $100 million or more. Leading the way was the $700 millionCity View Tower at Court Square in Queens NY, followed by a $300 million high-rise condominium building in Miami FL and a $215 million high-rise condominium building in New York NY. In February, the top five metropolitan areas ranked by the dollar amount of multifamily starts were – New York NY, Miami FL, Washington DC, San Francisco CA, and Boston MA. Metropolitan areas ranked 6 through 10 were – Dallas-Ft. Worth TX, Denver CO, Phoenix AZ, Orlando FL, and Chicago IL.
Single family housing in February slipped 1%, easing back for the second month in a row following the modest increases witnessed during the second half of 2017. In February, single family housing by major region showed gains in the Northeast, up 12%; and the Midwest, up 8%; but declines in the South Atlantic, down 2%; the South Central, down 4%; and the West, down 5%.
The 7% drop for total construction starts on an unadjusted basis during the first two months of 2018 compared to last year was due to reduced activity for two of the three main sectors. Nonbuilding construction fell 21% year-to-date, with public works down 12% and electric utilities/gas plants down 63%. Nonresidential building decreased 17% year-to-date, with commercial building down 12%, institutional building down 21%, and manufacturing building down 24%. For both nonbuilding construction and nonresidential building, the steep year-to-date declines reflected the comparison to elevated activity during the first two months of 2017.
Residential building year-to-date increased 10%, with single family housing up 6% and multifamily housing up 19%. By geography, total construction starts for the first two months of 2018 versus the same period a year ago performed as follows – the Midwest, up 13%; the South Atlantic, unchanged; the South Central, down 12%; the West, down 15%; and the Northeast, down 17%.
Additional insight is provided by looking at twelve-month moving totals, in this case the twelve months ending February 2018 versus the twelve months ending February 2017, which lessens the volatility present in comparisons of just two months. On this basis, total construction starts were up 2%. By major sector, nonbuilding construction grew 1%, with public works up 9% while electric utilities/gas plants fell 24%. Nonresidential building also grew 1%, with institutional building up 3% and commercial building down 5%, while manufacturing building improved 16%. Residential building advanced 3%, with single family housing up 8% while multifamily housing retreated 7%.
