New Construction Starts in July Slide 9 Percent

October 2018

At a seasonally adjusted annual rate of $817.4 billion, new construction starts in July fell 9 percent from the elevated pace reported in June, according to Dodge Data & Analytics. The latest month’s decline followed strong gains for total construction starts during the previous two months, with May up 14 percent and June up 11 percent. By major sector, nonresidential building dropped 22 percent after soaring 59 percent in June, which had been lifted by the start of two massive manufacturing plants and two massive office buildings. While July did see several large manufacturing and office projects reach groundbreaking, they were not the same magnitude as what took place in June. The other two major sectors in July held close to their June amounts, with residential building up 2 percent and nonbuilding construction unchanged.
    
During the first seven months of 2018, total construction starts on an unadjusted basis were $471.4 billion, up 2 percent from the same period a year ago. If the volatile electric utility/gas plant category is excluded, total construction starts during the January–July period of 2018 would be up 5 percent compared to last year.
    
The July statistics produced a reading of 173 for the Dodge Index (2000=100), down from the 190 for June which was the highest level so far during 2018. Looking at the first six months of 2018 on a quarterly basis, which eases some of the swings present in the monthly data, the Dodge Index averaged 165 during the first quarter and 170 during the second quarter. July’s 173 shows that at least the initial month of the third quarter is continuing the gradual upward trend shown by the first two quarters of this year.
    
Nonresidential building in July was $318.0 billion (annual rate), down 22 percent from June’s heightened volume. The manufacturing plant category plunged 60 percent from June, which had been boosted in particular by the U.S. Department of Energy’s $6.5 billion uranium processing facility in Oak Ridge, Tenn. If this project is excluded from the June construction start statistics, manufacturing building in July would have shown a 37 percent gain, while only modest declines would have been reported in July for nonresidential building, down 3 percent; and total construction, down 1 percent. The commercial building categories as a group slipped 5 percent in July after the 25 percent increase reported in June. Office building fell 23 percent from June, and warehouse construction starts eased back 1 percent. Through the first seven months of 2018, the top five metropolitan areas ranked by the dollar amount of new office starts were New York City, Washington D.C., Chicago, Omaha, Neb., and Boston. On the plus side for commercial building in July, hotel construction jumped 37 percent, and the commercial garage category rose 6 percent.
    
The institutional building categories as a group dropped 10 percent in July, following a 13 percent increase in June. The healthcare facilities category pulled back 35 percent after its 110 percent June hike. The amusement and recreational facility category dropped 25 percent in July, falling for the second month in a row. Educational facility construction retreated 12 percent after June’s 21 percent increase. Running counter to the broad decline for institutional building in July was a 28 percent increase for transportation terminals. The public buildings category jumped 56 percent in July, and church construction edged up 2 percent from a very weak June.
    
Residential building in July was $326.5 billion (annual rate), advancing 2 percent. Single-family housing registered a modest 3 percent gain, although in a broad sense this project type continues to hover around the level of activity established at the end of 2017. By geography, single-family housing showed this performance for July: the South Central and West, each up 5 percent; the South Atlantic, up 2 percent; and the Midwest and Northeast, each unchanged from the previous month. Multifamily housing in July receded 1 percent, after the 8 percent gain reported for June. In July, the top five metropolitan areas ranked by the dollar amount of multifamily starts were New York City, Washington, D.C., San Francisco, Chicago and Los Angeles. Metropolitan areas ranked 6 through 10 were Houston, Dallas–Fort Worth, Baltimore, Boston and Denver.
    
The 2 percent gain for total construction starts on an unadjusted basis during the January–July period of 2018 reflected a varied pattern by major sector. Residential building year-to-date increased 7 percent, with single-family housing up 7 percent and multifamily housing up 6 percent. Nonresidential building year-to-date grew 1 percent, as a 52 percent jump for manufacturing plant construction offset slightly weaker activity for commercial building, down 3 percent; and institutional building, down 5 percent. Nonbuilding construction year-to-date dropped 4 percent.
    
By geography, total construction starts during the first seven months of 2018 revealed this performance: the South Central, up 11 percent; the South Atlantic, up 6 percent; the Midwest, unchanged from the same period a year ago, the Northeast, down 3 percent; and the West, down 4 percent.