February Construction Starts Advance 2 Percent

May 2017

At a seasonally adjusted annual rate of $706.4 billion, new construction starts in February rose 2 percent from the previous month, according to Dodge Data & Analytics. This was the second straight monthly increase, following a 15 percent hike in January, as construction starts regained the upward track following four consecutive monthly declines to close out 2016.
    
Much of February’s advance came from a strong performance by the public works sector, plus an improved level of highway and bridge construction. The electric utility/gas plant category also strengthened with the start of two large power plants and a major transmission line project. At the same time, nonresidential building made a partial retreat after its strong January performance, yet still remained slightly above its average monthly pace during 2016. Residential building in February also settled back, due to a slide for multifamily housing.
    
During the first two months of 2017, total construction starts on an unadjusted basis were $98.5 billion, down 4 percent from the same period a year ago, which included elevated amounts for the often volatile manufacturing plant and electric utility/gas plant categories. Excluding manufacturing plants and electric utilities/gas plants, total construction starts during this year’s January–February period would be up 7 percent compared to last year.
    
The February statistics produced a reading of 149 for the Dodge Index (2000=100), compared to an upwardly revised 147 for January. The improved volume of construction starts during the first two months of 2017 also compares favorably to the 137 average for the Dodge Index during last year’s fourth quarter, as well as the 146 average for the full year 2016. “The first two months of 2017 provide evidence that construction starts are still trending upward, even with the loss of momentum that occurred toward the end of 2016,” stated Robert A. Murray, chief economist for Dodge Data & Analytics.
    
Nonresidential building, at $238.5 billion (annual rate), dropped 9 percent in February following its 18 percent January gain. The institutional categories as group were down 14 percent. Although transportation terminal work in February was down 62 percent, the latest month did include the start of the $1.2 billion terminal building portion of the South Terminal C project at Orlando International Airport and a $163 million terminal modernization project at Atlanta’s Hartsfield- Jackson International Airport. Also retreating in February was the public buildings category, down 30 percent following its improved January amount. On the plus side, the amusement and recreation category surged 101 percent in February. Educational facilities in February grew 12 percent, healthcare facilities improved 4 percent, and the religious building category grew 25 percent after a weak January.
    
The commercial side of the nonresidential building market dropped 11 percent in February, pulling back after its 12 percent January gain. Office construction fell 40 percent following its strong January performance, although the latest month did include the start of several noteworthy projects. February declines were also reported for commercial garages, down 17 percent; and hotels, down 3 percent. On the plus side for commercial building, February gains were reported for warehouses, up 47 percent; and stores, up 7 percent. The manufacturing building category jumped 147 percent after a weak January, reflecting the start of a $985 million refinery modernization in Richmond, Calif., and a $100 million Mercedes-Benz van manufacturing facility in North Charleston, S.C.
    
Residential building in February slipped 3 percent to $300.2 billion (annual rate). The decline was due to a 23 percent retreat for multifamily housing, which follows 24 percent growth over the previous two months. February featured 5 multifamily projects valued at $100 million or more, compared to 13 such projects that reached groundbreaking in January. Through the first two months of 2017, the top five metropolitan areas in terms of the dollar amount of multifamily starts were New York, N.Y., Los Angeles, Chicago, Washington, D.C., and Atlanta.
    
Single-family housing in February grew 5 percent, moving upward for the fifth straight month after receding during last year’s third quarter. By region, single family housing in February showed growth in all five major regions relative to January: the Midwest, up 12 percent; the South Central, up 6 percent; the West, up 4 percent; the South Atlantic, up 3 percent; and the Northeast, up 2 percent.
    
The 4 percent slide for total construction starts on an unadjusted basis for the first two months of 2017 compared to last year was the result of mixed behavior by major sector. Nonbuilding construction year-to-date fell 31 percent. Residential building year-to-date receded 1 percent, with multifamily housing down 20 percent while single-family housing grew 9 percent. Nonresidential building was the one major sector to report a year-to-date gain, climbing 21 percent, with institutional building up 62 percent, commercial building down 3 percent, and manufacturing building down 32 percent. By geography, total construction starts for the January–February period of 2017 showed two regions with year-to-date declines: the South Central, down 26 percent; and the Midwest, down 4 percent. Total construction year-to-date gains were reported for the South Atlantic, up 4 percent; the West, up 7 percent, and the Northeast, up 8 percent.
    
Additional perspective is obtained by looking at 12-month moving totals, in this case the 12 months ending February 2017 versus the 12 months ending February 2016, which lessens the volatility present in comparisons of just two months. On this basis, total construction starts were up 2 percent. By major sector, nonbuilding construction dropped 12 percent, residential building was up 4 percent, and nonresidential building increased 10 percent. By geography, the 12 months ending February 2017 showed this pattern for total construction starts: the South Central, down 13 percent; the Northeast, down 2 percent; the Midwest, up 5 percent; the South Atlantic, up 10 percent; and the West, up 11 percent.