May Construction Starts Increase 3 Percent

August 2015

May 2015 saw a 16 percent increase in the commercial categories as a group and a 10 percent increase in the institutional building categories as a group.
    
At a seasonally adjusted annual rate of $729.7 billion, new construction starts in May climbed 3 percent compared to April’s already elevated pace, according to Dodge Data & Analytics. The nonbuilding construction sector provided much of the lift, given an exceptionally strong amount reported for the electric power and gas plant category. Residential building showed modest improvement in May, helped by more multifamily housing, while nonresidential building fell sharply from its heightened April volume. During the first five months of 2015, total construction starts on an unadjusted basis were reported at $272.5 billion, up 25 percent from the same period a year ago. If 12 massive projects valued each at $1 billion or greater are excluded, total construction starts on an unadjusted basis would be up a more moderate 10 percent year-to-date.
    
The May statistics raised the Dodge Index to 154 (2000=100), up from a revised 149 for April. Through the first five months of 2015 the Dodge Index averaged 145, boosted by particularly strong readings in February, April, and May. “The presence of unusually large projects, notably several LNG terminals and several petrochemical plants, continues to lift the volume of total construction starts above its underlying trend,” stated Robert A. Murray, chief economist for Dodge Data & Analytics. “This lift from unusually large projects is expected to become less pronounced as 2015 proceeds, which still leaves total construction starts growing at about a 10 percent clip. Nonresidential building is witnessing a broader expansion this year, with its institutional building segment contributing to the upturn along with the strengthening trend already established for commercial building. Residential building is seeing further growth for multifamily housing although any upward movement by single-family housing remains hesitant. The public works sector has proven to be surprisingly resilient so far in 2015, as states and localities have picked up some of the slack from essentially flat federal funding.
    
Residential building, at $258.9 billion (annual rate), edged up 2 percent in May. Multifamily housing improved 7 percent, regaining upward momentum after settling back during the previous two months. Murray noted, “Mortgage rates remain very low, with the 30-year fixed rate currently standing at 4.0 percent, but first-time homebuyers have yet to give much if any lift to housing demand as the result of such factors as still tight lending standards, high student debt, and the preference by Millennials to stay with rental units in urban areas.”
    
Nonresidential building in May fell 28 percent to $208.1 billion (annual rate), pulling back after surging 58 percent in April. The manufacturing building category in April had provided a sizeable boost. The manufacturing building category plunged 94 percent in May relative to its exceptional April amount. If the manufacturing building category is excluded, nonresidential building in April would have advanced a more modest 9 percent, followed by a 12 percent increase in May. The commercial categories as a group increased 16 percent in May: warehouse construction registered a substantial 95 percent hike; hotel construction in May climbed 90 percent after a weak April; store construction in May improved 7 percent; and office construction in May retreated 30.
    
The institutional building categories as a group increased 10 percent in May: educational facilities, the largest nonresidential building category by dollar volume, grew 8 percent; the healthcare facilities category in May registered a strong 34 percent gain; and the public buildings category in May rose 33 percent. On the negative side, the amusement category in May retreated 4 percent after a strong April. Decreased activity was also reported for church construction, down 6 percent; and transportation terminal work, down 25 percent.
    
The 25 percent gain for total construction starts on an unadjusted basis for the first five months of 2015 was comprised of growth for all three major construction sectors. Nonbuilding construction year-to-date climbed 70 percent, with electric utilities and gas plants up 434 percent and public works up 11 percent. Residential building year-to date advanced 14 percent, with multifamily housing up 24 percent and single-family housing up 10 percent. Nonresidential building year-to-date increased 8 percent, with manufacturing building up 38 percent, institutional building up 8 percent, and commercial building down 3 percent.