October Construction Starts Recede 4%

NEW YORK (November 22, 2016) – New construction starts in October decreased 4 percent to a seasonally adjusted annual rate of $678.9 billion, settling back from the elevated amount that was reported in September, according to Dodge Data & Analytics. Nonresidential building retreated from its brisk September pace, which was this sector’s strongest volume so far in 2016. October’s level for nonresidential building was still healthy compared to what’s been reported for much of 2016 – while down 12 percent from its average for August and September, it remained 15 percent above its lackluster average for this year’s first 7 months. Residential building in October showed moderate growth, with contributions from both single family and multifamily housing. Nonbuilding construction in October edged up slightly, as an increase for public works offset diminished activity for electric utilities/gas plants. The public works sector in October benefited from the start of the $1.7 billion Mid-Coast Corridor Transit Project in San Diego, California, and the $850 million State Highway 288 Tollway project in the Houston, Texas, area. For the first 10 months of 2016, total construction starts on an unadjusted basis were $572.0 billion, down a slight 1 percent from the same period a year ago. If the volatile manufacturing plant and electric utility/gas plant categories are excluded, total construction starts during this year’s January-October period would be up 3 percent.

October’s data produced a reading of 144 for the Dodge Index (2000=100), compared to 149 in September and 152 in August. The quarterly averages for the Dodge Index in 2016 show the first quarter at 149, the second quarter at 138, and the third quarter at 142, with the average over the first 9 months of the year coming in at 143. October’s pace for total construction starts, while down from August and September, is still up from the third quarter.

“After a sluggish second quarter, the pace of construction starts picked up during the third quarter, and on this basis October is at least maintaining recent improvement,” said Robert A. Murray, chief economist for Dodge Data & Analytics. “While there was concern earlier in 2016 that the often hesitant expansion for construction could be stalling, the generally stronger activity in August, September, and now October eases those concerns. Furthermore, the year-to-date comparisons have strengthened as 2016 has proceeded, with total construction starts now down just 1 percent through the first 10 months of this year. This compares with the 3 percent decline at the nine-month mark, the 7 percent decline at the 8-month mark, and the 11 percent decline at the 7-month mark. Aside from stronger activity during the most recent 3 months, the year-to-date comparisons are benefiting from last year’s pattern for total construction starts, which showed weaker activity in the second half. The first half of 2015 had been lifted by 13 very large projects valued each at $1 billion or more, while last year’s second half saw only three such projects reach the construction start stage.”

“On balance, the current year is turning out to be one where the overall level of construction starts is at least holding steady,” Murray said. “Supportive elements are moderate job growth, generally healthy market fundamentals for commercial real estate, and the funding coming from the state and local bond measures passed in recent years. Going forward, the continued expansion for construction should be helped by the November 2016 passage of such bond measures as the $9 billion Proposition 51 in California for school construction, and the emphasis of the incoming Trump Administration on increased spending for infrastructure.”

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