New Construction Starts in December Slide 5 Percent

March 2017

New construction starts in December slipped 5 percent to a seasonally adjusted annual rate of $613.0 billion, according to Dodge Data & Analytics. The latest month’s decline for total construction was due to sharply reduced activity for the nonbuilding construction sector, reflecting further erosion by public works as well as a steep plunge by the electric utility/gas plant category. At the same time, nonresidential building in December held steady with its November pace, and residential building was able to register moderate growth. For all of 2016, total construction starts advanced 1 percent to $676.5 billion, a considerably smaller gain than the 11 percent increase reported for 2015. If the volatile manufacturing plant and electric utility/gas plant categories are excluded, total construction starts in 2016 would be up 4 percent, depicting a more gradual deceleration relative to the corresponding 9 percent increase in 2015.
    
The December statistics produced a reading of 130 for the Dodge Index (2000=100), down from a revised 136 for November. For the full year 2016, the Dodge Index averaged 143. “The construction start statistics over the course of 2016 revealed a varied pattern, with the end result being a slight gain for the year as a whole,” stated Robert A. Murray, chief economist for Dodge Data & Analytics. “On a quarterly basis, growth was reported during the first and third quarters, while activity settled back during the second and fourth quarters. On the plus side for 2016, commercial building continued to rise, and institutional building provided evidence that it was beginning to regain upward momentum after pausing in 2015. Single-family housing showed moderate improvement, while multifamily housing witnessed growth in numerous markets with the notable exception of New York, N.Y., which retreated after the robust activity reported in 2015.
    
“In a broad sense, construction activity shifted to a more mature stage of expansion in 2016, characterized by a slower rate of growth for total construction compared to the 10 percent to 12 percent gains of the previous four years,” Murray continued. “For 2017, more growth at a moderate pace is expected for total construction. Commercial building has yet to see much in the way of rising vacancy rates, and the institutional building sector will be helped by the passage of such recent bond measures as the $9 billion Proposition 51 in California. Manufacturing plant construction should turn upward, no longer exerting a downward pull on overall construction activity. Despite rising mortgage rates, housing should benefit from greater demand coming from an increasing number of millennials moving into their 30s.”
    
Nonresidential building in December was reported at $224.0 billion (annual rate), basically unchanged from November. The manufacturing plant category jumped 124 percent, bouncing back from a weak November. The commercial categories as a group advanced 11 percent in December, making a partial rebound after falling 20 percent in the previous month. Hotel construction climbed 74 percent and office construction in December increased 25 percent. Smaller gains in December were reported for commercial garages, up 13 percent; and stores, up 8 percent. Warehouse construction was the one commercial project type to retreat in December, falling 35 percent.
    
The institutional building categories as a group dropped 17 percent in December. Amusement-related construction plunged 70 percent, following its elevated activity in November. Reduced activity was also reported in December for public buildings (courthouses and detention facilities), down 17 percent; and healthcare facilities, down 12 percent. On the plus side, the educational facilities category jumped 34 percent in December, reaching its highest amount in 2016. Transportation terminal work grew 20 percent in December. The religious building category bounced back 87 percent in December from an extremely weak November amount.
    
For 2016 as a whole, nonresidential building advanced 4 percent to $227.7 billion, regaining upward momentum after slipping 2 percent in 2015. Over the past two years the percent change for nonresidential building has been dampened by substantial declines for the manufacturing plant category, which plunged 32 percent in 2015 and then another 27 percent in 2016. If the manufacturing plant category is excluded, nonresidential building in 2016 would show a 7 percent increase, slightly stronger than the corresponding 4 percent gain in 2015.
    
The commercial categories as a group in 2016 climbed 11 percent, a faster rate of growth than the 7 percent rise in 2015. Leading the way in 2016 was office construction, increasing 21 percent as it continues to move upward from the extremely low amounts reported during the years immediately following the recession. Hotel construction in 2016 advanced 19 percent, matching its rate of growth in the previous year. Warehouse construction in 2016 improved 8 percent, continuing the upward trend that’s been present since 2011, and commercial garages grew 13 percent. Store construction was the one commercial project type not able to register an increase in 2016, sliding 8 percent as its subdued recovery of the previous five years stalled.
    
The institutional categories as a group increased 4 percent in 2016 following the slight 1 percent gain reported in 2015. Educational facilities, the largest institutional category, rose 3 percent with the upward push coming from K-12 schools while college/university construction settled back from earlier gains. As for the smaller institutional categories, amusement-related construction posted a sizeable 25 percent gain in 2016, and the transportation terminal category climbed 18 percent in 2016. On the negative side, 2016 declines were reported for public buildings, down 3 percent; and religious buildings, down 28 percent.
    
Residential building in December climbed 9 percent to $306.9 billion (annual rate). Multifamily housing finished the year on a strong note, rising 26 percent after retreating 12 percent in November.