January Construction Starts Rise 2 Percent

April 2019

The value of new construction starts in January advanced 2 percent compared to December, reaching a seasonally adjusted annual rate of $722.5 billion, according to Dodge Data & Analytics. The slight gain followed the loss of momentum that was reported towards the end of 2018, with total construction declines of 7 percent in November and 10 percent in December. Each of the three main construction sectors in January registered modest growth. Residential building climbed 4 percent, lifted by a rebound for multifamily housing. Nonresidential building edged up 1 percent, reflecting a stronger pace for its commercial building segment including large office projects. Nonbuilding construction also edged up 1 percent, helped by the start of a $1.0 billion natural gas pipeline in Oklahoma and several large electric utility projects. On an unadjusted basis, total construction starts in January were $51.5 billion, down 12 percent from the same month a year ago. On a 12-month moving total basis, total construction starts for the 12 months ending January 2019 held steady with the corresponding amount for the 12 months ending January 2018.
    
The January statistics produced a reading of 153 for the Dodge Index (2000=100) compared to December’s 150. During 2018, the pattern of construction starts featured especially strong activity in June and October, which was then followed by declines in the months immediately following. This led to December’s reading of 150 for the Dodge Index, which was at the low end of last year’s range of activity.
    
“January’s slight increase suggests that construction starts are beginning to stabilize after the diminished activity reported at the end of last year,” stated Robert A. Murray, chief economist for Dodge Data & Analytics. “This is consistent with the belief that total construction starts for 2019 will be able to stay close to last year’s volume. It’s true that the rate of growth for total construction starts has subsided from the 7 percent annual gain reported back in 2017, but it’s still too early to say that construction activity has made the transition from deceleration to decline.”
    
“In early 2019, there are several near-term positives for construction,” Murray continued. “Interest rates have settled back from levels reached during last year’s fourth quarter, material prices appear to be rising more slowly, and the partial government shutdown was brought to a close. The federal budget deal signed into law on Feb. 15 included a 2 percent increase to $45.3 billion for the federal-aid highway obligation ceiling, as called for by the 2015 Fixing America’s Surface Transportation Act. However, the benefits of tax reform on economic growth are expected to wane this year. Furthermore, the most recent survey of bank lending officers conducted by the Federal Reserve suggests that a more cautious lending stance emerged during the latter half of 2018, especially with regard to loans for multifamily projects.”
    
Nonresidential building in January was $245.2 billion (annual rate), up 1 percent following a 13 percent slide in December. Residential building was $309.8 billion (annual rate), up 4 percent and rebounding from its 9 percent slide in December. By major region, single-family housing performed as follows in January compared to December: the West, up 3 percent; the South Central, up 2 percent; the South Atlantic, unchanged; the Northeast, down 3 percent; and the Midwest, down 9 percent.
    
The 12 percent decline for total construction starts on an unadjusted basis for January 2019 relative to January 2018 was due to decreased activity for each of the three major sectors. Nonresidential building dropped 12 percent from a year ago, with institutional building down 18 percent and manufacturing building down 38 percent, while the commercial building segment ran counter with a 2 percent gain. Residential building fell 13 percent from a year ago, with single-family housing down 13 percent and multifamily housing down 11 percent. Nonbuilding construction descended 10 percent from a year ago. By major region, total construction starts for January 2019 relative to January 2018 showed this pattern: the South Atlantic, up 2 percent; the Northeast, down 10 percent; the South Central, down 11 percent; the West, down 12 percent; and the Midwest down 33 percent from January 2018.
    
Useful perspective is made possible by looking at 12-month moving totals, in this case the 12 months ending January 2019 versus the 12 months ending January 2018. On this basis, total construction starts for the most recent 12 months held steady with the amount of the previous 12 months. By major sector, nonresidential building matched the previous period’s volume, with commercial building up 2 percent, institutional building down 5 percent and manufacturing building up 17 percent. Residential building advanced 4 percent compared to the previous period, with multifamily housing up 7 percent and single-family housing up 3 percent. Nonbuilding construction fell 6 percent from the previous period, with public works down 2 percent and electric utilities/gas plants down 30 percent.