New Construction Starts in May Edge Up 1 Percent

August 2017

At a seasonally adjusted annual rate of $651.2 billion, new construction starts in May increased a slight 1 percent from April, according to Dodge Data & Analytics. Public works construction bounced back 30 percent from its subdued April amount, helped by the May start of four large pipeline projects totaling a combined $3.0 billion. This enabled the nonbuilding construction sector to register a 23 percent gain in May, offsetting modest 4 percent declines for both nonresidential building and housing. Through the first five months of 2017, total construction starts on an unadjusted basis were $274.3 billion, down 5 percent from the same period a year ago. If the volatile manufacturing plant and electric utility/gas plant categories are excluded, total construction starts during the first five months of 2017 would be up 2 percent relative to last year.
    
The May statistics produced a reading of 138 for the Dodge Index (2000=100), slightly higher than the 137 reported for April. During this year’s first quarter, the Dodge Index averaged 152.
    
Nonresidential building, at $219.3 billion (annual rate), slipped 4 percent in May. The commercial categories as a group fell 10 percent, with office construction dropping 40 percent following gains of 41 percent in March and 23 percent in April.     The other commercial categories showed growth in May. Warehouse construction climbed 17 percent, store construction advanced 16 percent, and hotel construction increased 11 percent. Also contributing was the commercial garage category, which rose 7 percent. Manufacturing plant construction jumped 22 percent.
    
The institutional side of the nonresidential building market retreated 4 percent in May. Education facilities, the largest nonresidential building category by dollar volume, dropped 21 percent after registering a 12 percent gain in April. Declines were also reported for religious buildings, down 10 percent; and the amusement category, down 36 percent. On the positive side, healthcare facilities climbed 38 percent in May with the help of five projects valued at $100 million or more. The public buildings category advanced 51 percent from a lackluster April, while the transportation terminal category posted a 23 percent gain in May.
    
Residential building was $284.9 billion (annual rate) in May, down 4 percent. Multifamily housing retreated 10 percent following increases over the previous two months that saw activity rise 20 percent. In May, the top five metropolitan areas in terms of the dollar amount of multifamily starts were the following: New York City, Los Angeles, Philadelphia, Chicago and Boston. Through the first five months of 2017, the top five metropolitan areas were the following: New York City, Los Angeles, Chicago, Washington, D.C., and San Francisco. The New York City share of the national multifamily total so far in 2017 is 18 percent, up slightly from the 17 percent share reported for full year 2016, although down from the 25 percent share reported for full year 2015.
    
Single-family housing settled back 2 percent in May, with its upward track pausing for the third month in a row after showing steady growth during the fourth quarter of 2016 and the first two months of 2017. By major region, single-family housing in May revealed this performance: the West, down 7 percent; the Midwest, down 5 percent; the South Atlantic, up 1 percent; the South Central, up 2 percent; and the Northeast, up 4 percent. One plus for single family housing going forward is the recent retreat in the cost of financing, with the 30-year fixed mortgage rate slipping to 3.9 percent in early June, after reaching 4.3 percent in late 2016.
    
The 5 percent decline for total construction starts on an unadjusted basis during the first five months of 2017 was due to a varied pattern by major sector. Nonresidential building grew 5 percent year-to-date, with institutional building up 17 percent, commercial building down 5 percent and manufacturing building down 9 percent. Residential building year-to-date was flat, with single-family housing up 8 percent while multifamily housing decreased 17 percent. Nonbuilding construction fell 25 percent year-to-date. By geography, total construction starts in the January–May period of 2017 showed this behavior: the Midwest, down 18 percent; the South Central, down 14 percent; the Northeast, down 3 percent; the West, unchanged; and the South Atlantic, up 8 percent.
    
Additional perspective comes from looking at 12-month moving totals, in this case the 12 months ending May 2017 versus the 12 months ending May 2016. On this basis, total construction starts were up 3 percent. By major sector, nonresidential building increased 14 percent, with manufacturing building up 20 percent, institutional building up 16 percent and commercial building up 11 percent. Residential building grew 3 percent, with single-family housing up 7 percent while multifamily housing fell 6 percent. Nonbuilding construction fell 12 percent.