New Construction Starts in December Slide 5 Percent

NEW YORK, N.Y. – New construction starts in December slipped 5 percent to a seasonally adjusted annual rate of $613.0 billion, according to Dodge Data & Analytics. The latest month’s decline for total construction was due to sharply reduced activity for the nonbuilding construction sector, reflecting further erosion by public works as well as a steep plunge by the electric utility/gas plant category. At the same time, nonresidential building in December held steady with its November pace, and residential building was able to register moderate growth. For all of 2016, total construction starts advanced 1 percent to $676.5 billion, a considerably smaller gain than the 11 percent increase reported for 2015. If the volatile manufacturing plant and electric utility/gas plant categories are excluded, total construction starts in 2016 would be up 4 percent, depicting a more gradual deceleration relative to the corresponding 9 percent increase in 2015.

The December statistics produced a reading of 130 for the Dodge Index (2000=100), down from a revised 136 for November. For the full year 2016, the Dodge Index averaged 143. “The construction start statistics over the course of 2016 revealed a varied pattern, with the end result being a slight gain for the year as a whole,” stated Robert A. Murray, chief economist for Dodge Data & Analytics. “On a quarterly basis, growth was reported during the first and third quarters, while activity settled back during the second and fourth quarters. On the plus side for 2016, commercial building continued to rise, and institutional building provided evidence that it was beginning to regain upward momentum after pausing in 2015. Single-family housing showed moderate improvement, while multifamily housing witnessed growth in numerous markets with the notable exception of New York, New York, which retreated after the robust activity reported in 2015. On the negative side, public works settled back in 2016, and steep declines were reported for manufacturing plants and the gas plant portion of the electric utility/gas plant category.”

“In a broad sense, construction activity shifted to a more mature stage of expansion in 2016, characterized by a slower rate of growth for total construction compared to the 10-12 percent gains of the previous four years,” Murray continued. “For 2017, more growth at a moderate pace is expected for total construction. Commercial building has yet to see much in the way of rising vacancy rates, and the institutional building sector will be helped by the passage of such recent bond measures as the $9 billion Proposition 51 in California. Manufacturing plant construction should turn upward, no longer exerting a downward pull on overall construction activity. Despite rising mortgage rates, housing should benefit from greater demand coming from an increasing number of millennials moving into their thirties. And, public works will be supported by recent bond measures passed at the state level, although Congress will need to revisit the flat federal funding for highways under the current continuing resolution that expires at the end of April. Additional support for public works will depend on how Congress responds to the proposals by the Trump Administration for more infrastructure spending, including incentives to spur private investment.”

Nonresidential building in December was reported at $224.0 billion (annual rate), basically unchanged from November.

Residential building in December climbed 9 percent to $306.9 billion (annual rate).

Nonbuilding construction in December plummeted 41 percent to $82.0 billion (annual rate), with especially steep declines by two project types susceptible to month-to-month volatility – electric utilities/gas plants and miscellaneous public works.

The 1 percent increase at the national level for total construction starts in 2016 was the result of a mixed performance at the five-region level. Total construction gains were reported in the West and the South Atlantic, each up 10 percent% and the Midwest, up 5 percent. Total construction declines were reported in the Northeast, down 2 percdnt (which reflected the retreat for multifamily housing in the New York, New York metropolitan area) and the South Central, down 16 percent (which reflected that region’s comparison to 2015 which included the start of several massive liquefied natural gas export terminals).