September Construction Starts Settle Back 5 Percent

NEW YORK, N.Y. –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 in September, 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. “The pace of construction starts has clearly slowed over the past three months, following what was unsustainably high levels during May and June,” stated Robert A. Murray, chief economist for Dodge Data & Analytics.

“Since construction starts on a monthly basis are often subject to wide swings, it’s useful to look at the recent pattern of activity on a quarterly basis,” Murray continued. “After sliding 7 percent in the fourth quarter of 2017, total construction starts strengthened 3 percent in this year’s first quarter and then advanced another 4 percent in the second quarter. The loss of momentum in July, August and now September produced a 7 percent decline for the third quarter, in effect returning the pace of construction starts to the level reported at the end of last year. It’s true that the rate of growth for construction starts has decelerated more in 2018, but it’s still too early to say that the construction industry has rounded the peak and is now in decline. There are, of course, mounting headwinds affecting construction, namely rising interest rates and higher material costs, but for now these have been balanced by stronger economic growth, some easing of bank lending standards, still healthy market fundamentals for commercial real estate, and greater state financing for school construction and enhanced federal funding for public works.”

Nonresidential building in September was $236.4 billion (annual rate), down 6 percent. Nonbuilding construction in September was $156.5 billion (annual rate), down 13 percent.  Residential building in September was $316.6 billion (annual rate), up 2 percent.

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