September Construction Starts Settle Back 5 Percent

December 2018

New construction starts in September fell 5 percent from the previous month to a seasonally adjusted annual rate of $709.6 billion, according to Dodge Data & Analytics. The September downturn followed 9 percent declines in both July and August, as the pace of construction starts has now pulled back for the third month in a row after reaching the current year’s high in June.
    
By major sector, nonresidential building weakened further in September, sliding 6 percent. Nonbuilding construction dropped 13 percent due to sharp retrenchment for the electric utility/gas plant category, while public works held basically steady.
    
Residential building was the one major sector posting a gain in September, rising 2 percent. Through the first nine months of 2018, total construction starts on an unadjusted basis were $599.9 billion, down 1 percent from the same period a year ago. The year-to-date volume for total construction starts was dampened by a 49 percent plunge for the electric utility/gas plant category. If the electric utility/gas plant category is excluded, total construction starts during the first nine months of 2018 would be up 1 percent compared to the same period last year.
    
September’s data produced a reading of 150 for the Dodge Index (2000=100), after the 157 reported for August.
    
Nonresidential building in September was $236.4 billion (annual rate), down 6 percent. The commercial building categories as a group fell 13 percent, retreating for the third month in a row after the robust volume in June. Office construction in September dropped 38 percent from August, and stores and warehouses also weakened, with each registering a 4 percent decline. Hotel construction was unchanged from the previous month. The commercial garage category was the one commercial project type to report a September gain, rising 40 percent after a lackluster August. Manufacturing plant construction also showed improvement from August, climbing 36 percent.
    
The institutional side of the nonresidential building sector dropped 6 percent in September, a less severe decline than what was reported for commercial building. Educational facilities, the largest institutional building category, retreated 13 percent. Healthcare facilities fell 26 percent in September, following the 28 percent gain that was reported in August, and the public buildings category plunged 37 percent. The most noteworthy area of strength in September was the transportation terminal category, surging 153 percent, as the $700 million concourse expansion project at Denver International Airport was entered as a construction start. Also advancing was the amusement-related category, up 11 percent. Church construction starts were able to show improvement in September, increasing 17 percent after very weak activity in August.
    
Residential building in September was $316.6 billion (annual rate), up 2 percent. Single-family housing rose 2 percent, rebounding slightly from a 5 percent drop in August. By geography, September showed this pattern for single-family housing relative to August: the Northeast, up 13 percent; the West and South Atlantic, each up 3 percent; the South Central, down 1 percent; and the Midwest, down 2 percent. Through the first nine months of 2018 single-family housing showed this pattern compared to last year: the West, up 12 percent; the South Atlantic and the South Central, each up 6 percent; the Midwest, up 2 percent; and the Northeast, up 1 percent.
    
Multifamily housing in September grew 1 percent, although it was 18 percent below the strong volume reported in this year’s first quarter. There were six multifamily projects each with a construction start cost of $100 million or more that reached groundbreaking in September, compared to eight such projects in August. Through the first nine months of 2018, the top five metropolitan areas ranked by the dollar amount of multifamily starts were New York City, Washington, D.C., Miami, Boston and Seattle. Metropolitan areas ranked 6 through 10 were San Francisco, Los Angeles, Dallas–Fort Worth, Chicago and Atlanta.
    
The 1 percent decline for total construction starts on an unadjusted basis during the January–September period of 2018 was the result of a varied pattern by major sector. Nonresidential building year-to-date dropped 7 percent, as a 15 percent increase for manufacturing plant construction was outweighed by declines of 6 percent for commercial building and 11 percent for institutional building. (The year-to-date performance for nonresidential building weakened compared to what was reported with the August 2018 construction starts report since the comparison now includes very strong activity in September 2017. The year-to-date performance for nonresidential building is expected to strengthen during this year’s closing months.)
    
Residential building was the one major sector to see a year-to-date increase, rising 6 percent with single-family housing up 7 percent and multifamily housing up 5 percent.
    
By geography, total construction starts during the first nine months of 2018 showed this behavior relative to a year ago: the Northeast, down 19 percent; the West, down 4 percent, the Midwest, up 1 percent; the South Atlantic, up 6 percent; and the South Central, up 12 percent.