New Construction Starts Dip 3% in February as Public Works Sector Softens

New construction in the residential building sector increased 10% year-to-date, with single family housing up 6% and multifamily housing up 19%.

NEW YORK — New construction starts in February receded 3% from the previous month, totaling a seasonally adjusted annual rate of $708.1 billion, according to Dodge Data & Analytics. The reduced activity in February followed a 2% decline in January after the 12% increase reported in December.

The nonbuilding 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 City.

On a twelve-month moving total basis, total construction starts for the twelve months ending in February were up 2% compared to the same period the previous year, according to Dodge Data & Analytics. The February data 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,” states Robert A. Murray, chief economist, 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.

Market Softens, But Still Progressing

Compared to last year’s fourth quarter, the first two months of 2018 have seen further increases for nonresidential building, suggesting the construction expansion, while slowing, is still in progress, Murray says.

“It’s true that the construction industry is now seeing more headwinds. 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,” he says. “The Federal Reserve is tightening monetary policy, and concerns about inflation by the financial markets have contributed to rising long-term interest rates.”

Nonbuilding construction in February was $118.2 billion (annual rate), down 23% from January.  The electric utility/gas plant category was particularly weak, plunging 83% as the largest project entered as a February start was a $40 million electric substation upgrade in California.

Nonresidential building in February was $246.7 billion (annual rate), up 5% from January. The commercial categories as a group rose 14%, with gains across most of the structure types.  Office construction advanced 24% after a subdued January, boosted by the start of two large data centers – a $600 million Google data center in Clarksville, Tenn., and a $183 million Facebook data center in Ft. Worth, Texas.

The institutional categories as a group increased 5% in February, boosted by a 52% surge for new healthcare facilities. There were six healthcare facilities valued each at $100 million or more entered as February starts, led by the $400 million Boston Children’s Clinical Building.

Residential building in February was $343.3 billion (annual rate), up 1% from January. Multifamily housing increased 7%, reflecting the start of 11 projects valued each at $100 million or more. Leading the way was the $700 million City View Tower at Court Square in Queens, N.Y.  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: Midwest, up 13%; South Atlantic, unchanged; South Central, down 12%; West, down 15%; and Northeast, down 17%.

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