July Construction Starts Increase 6 Percent

October 2017

The value of new construction starts in July advanced 6 percent from the previous month to a seasonally adjusted annual rate of $728.1 billion, according to the most recent report by Dodge Data & Analytics. Leading the way was a 26 percent jump by the nonbuilding construction sector. Residential building in July increased 8 percent, as multifamily housing rebounded after three consecutive monthly declines. Running counter was a 7 percent slide for nonresidential building following its 14 percent hike in June, as both office buildings and hotels retreated from June’s elevated activity, outweighing a sharp rise for healthcare facilities in July. During the first seven months of 2017, total construction starts on an unadjusted basis were $411.9 billion, down 1 percent from the same period a year ago. Total construction starts in this year’s January–July period would be up 3 percent from a year ago if the steep 44 percent decline for the electric utility/bas plant category were excluded.
    
July’s data lifted the Dodge Index to 154 (2000=100), compared to an upwardly revised 145 for June. After this year’s strong first quarter, the Dodge Index had receded 11 percent in the second quarter. July’s total construction gain brings activity back to within 2 percent of the first quarter’s pace.
    
“July’s increase means the third quarter began on a healthy note, which should help to maintain the up-and-down pattern on a quarterly basis that’s been present for construction starts over the past year,” stated Robert A. Murray, chief economist for Dodge Data & Analytics. “Within that up-and-down pattern there remains a modest upward trend, as it appears that construction starts are still in the process of reaching a peak, as opposed to having already reached a peak. It’s true that residential building is now seeing generally decreased activity for multifamily housing, but the monthly declines continue to be mixed in with monthly gains, such as what took place in July. For nonresidential building, growth is being supported by its institutional segment, while commercial building is leveling off due to varied behavior by its individual project types.”
    
Residential building in July was $301.1 billion (annual rate), up 8 percent. Multifamily housing increased 30 percent, strengthening after three monthly declines in a row.
    
Nonresidential building in July was $231.2 billion (annual rate), down 7 percent. The commercial categories as a group dropped 22 percent, retreating after climbing 24 percent in June. Office construction in June had surged 82 percent. In July office construction fell 52 percent, with only one project valued at $100 million or more. A similar pattern was present for hotels, which surged 65 percent in June. In July hotel construction fell 42 percent. On the plus side, warehouse construction jumped 46 percent in July. July gains were also reported for commercial garages, up 9 percent; and stores and shopping centers, up 7 percent. Manufacturing plant construction in July fell 29 percent from its June amount.
    
The institutional side of the nonresidential building market climbed 16 percent in July, in contrast to the declines reported for the commercial and manufacturing segments. Healthcare facilities jumped 108 percent after a weak June. Transportation terminal construction also posted a large percentage increase after a weak June, rising 85 percent. On the negative side, educational facilities slipped 3 percent in July, although the category did include the start of several large school construction projects. Through the first seven months of 2017, the top five states in terms of the dollar amount of educational facility construction were Texas, New York, California, Washington and Massachusetts. July declines were also registered by public buildings, down 13 percent; and amusement-related work, down 32 percent.
    
The 1 percent slippage for total construction starts on an unadjusted basis during the January–July period of 2017 was due to diminished activity for nonbuilding construction, as both residential building and nonresidential building managed to post gains. Nonbuilding construction dropped 15 percent year-to-date, with electric utilities/gas plants down 44 percent and public works down 2 percent. Residential building year-to-date was up 1 percent, with a 9 percent increase for single-family housing slightly outweighing a 14 percent slide for multifamily housing. Nonresidential building year-to-date climbed 8 percent, with institutional building up 12 percent while commercial building held steady, combined with a 27 percent increase for manufacturing building that marks a shift from this category’s sharp declines in 2015 and 2016.