New Commercial Construction Starts Fell 9% in July

New York, NY, September 6, 2018-At a seasonally adjusted annual rate of $817.4 billion, new construction starts in July fell 9% 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% and June up 11%.

By major sector, nonresidential building dropped 22% after soaring 59% 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% and nonbuilding construction unchanged.

During the first seven months of 2018, total construction starts on an unadjusted basis were $471.4 billion, up 2% 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.

“The pattern of construction starts on a monthly basis is often affected by the presence or absence of very large projects, and several exceptionally large projects boosted activity in June to an unsustainably high amount,” stated Robert A. Murray, chief economist for Dodge Data & Analytics. “These June projects included a $6.5 billion uranium processing plant in Tennessee and a $1.7 billion petrochemical plant in Texas, as well as the $1.8 billion Spiral office tower in New York and a $665 million office tower in Chicago. While July also featured the start of several large projects, such as a $2.4 billion petrochemical plant in Texas and a $750 million data center in Alabama, the lift from very large projects in July was less than what took place in June. Still, the pace of construction starts in July came in 2% above the average for the second quarter, which is consistent with the sense that overall construction starts continue to trend upward, notwithstanding July’s steep decline compared to June. The current year has seen the mounting headwinds of higher material prices and higher interest rates, but it’s also seen the tailwinds of healthy economic growth, some easing of bank lending standards, and the increased funding for public works programs coming from the federal appropriations legislation passed in March. Amidst the monthly ups-and-downs, the broad trend for construction starts during 2018 remains one of modest expansion.”

Nonresidential building in July was $318.0 billion (annual rate), down 22% from June’s heightened volume. The manufacturing plant category plunged 60% 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, Tennessee. If this project is excluded from the June construction start statistics, manufacturing building in July would have shown a 37% gain, while only modest declines would have been reported in July for nonresidential building, down 3%; and total construction, down 1%.