Construction starts ease back 2 percent in September: Nonresidential grows, but housing, public works retreat


The value of new construction starts in September decreased a slight 2 percent to a seasonally adjusted annual rate of $703.7 billion, according to Dodge Data & Analytics. This follows the 22 percent jump for total construction starts in August, which witnessed the highest monthly pace for construction starts so far in 2016.

Nonresidential building showed further strength in September, exceeding its elevated August amount. The lift for nonresidential building in September came from the start of two very large office towers in New York NY with a combined construction start cost of $3.5 billion, as well as eight large hospital projects that together summed to $2.2 billion.

The New York projects include the $2.0 billion, 66-story 3 Hudson Yards Boulevard office building on Manhattan’s west side and the $1.5 billion, 67-story One Vanderbilt Tower near Grand Central Station.

One Vanderbilt Tower

However, the housing sector lost momentum in September, pulling back from August which included groundbreaking for a number of very large multifamily projects. Nonbuilding construction also slipped in September, following its improved August volume that included the start of a $3.0 billion pipeline upgrade in the southeastern part of the nation. Through the first nine months of 2016, total construction starts on an unadjusted basis were $506.7 billion, trailing the same period a year ago by 3 percent.

The September data produced a reading of 149 for the Dodge Index (2000=100), down from an upwardly revised 152 for August. September was still fairly high by recent standards, coming in 6 percent above the average of the previous eight months.

“Whether looking at construction starts month-to-month or quarter-to-quarter, the past two years have shown considerable volatility, reflecting in part when very large projects were entered as construction starts,” said Robert A. Murray, chief economist for Dodge Data & Analytics. “The first two quarters of 2015 included 13 very large projects valued each at $1 billion or more, followed by only one such project in last year’s third quarter. The current year has assumed a ‘mirror image’ quality with respect to the timing of very large projects – only four were entered as construction starts during this year’s first two quarters, but in the just completed third quarter six such projects were entered as construction starts. When combined with the more broad-based strengthening for construction that’s taken place in this year’s August and September, and with the comparison to the subdued activity for the same two months a year ago, the year-to-date shortfall for total construction starts has become considerably smaller than what was reported earlier in the year.”

“While the year-to-date percent change for total construction starts at the 7-month mark was initially reported as down 11 percent, at the 8-month mark it was down 7% and at the 9-month mark it was down just 3 percent,” Murray continued. “Furthermore, if the volatile electric utility/gas plant category is removed from the year-to-date comparison, total construction starts would be flat with last year. Increasingly, it appears that 2016 is shaping up as a year when the overall level of construction starts is essentially holding steady. This is being supported by such economic factors as moderate job growth, generally healthy market fundamentals for commercial real estate, and the funding coming from state and local bond measures that have been passed in recent years.”

Nonresidential building in September increased 5 percent to $282.3 billion (annual rate), following the 43 percent surge in August which benefitted from the start of a $3.0 billion petrochemical plant in Louisiana and the $1.7 billion Wynn Casino in Everett MA.

As a group, the commercial categories in September registered a 37 percent increase, after the 31 percent gain reported in August. The improved levels for commercial building in August and September followed a lackluster amount of construction starts during the previous four months. The manufacturing plant category in September dropped 84 percent, after being boosted in August by the $3.0 billion petrochemical plant in Louisiana.

The institutional side of the nonresidential building market advanced 8 percent in September. Much of the lift came from a strong volume for healthcare facilities which climbed 57 percent. There were eight healthcare facilities valued each at $100 million or more that reached groundbreaking in September, with the two largest being a $756 million healthcare facility complex in Loma Linda CA and the $500 million Vassar Brothers Medical Center patient pavilion in Poughkeepsie NY.

Residential building, at $271.1 billion (annual rate), fell 8 percent in September. Multifamily housing retreated after a strong performance in August, falling 17 percent in September. While August included 13 multifamily projects valued each at $100 million or more, there were only five such projects that reached groundbreaking in September.

Nonbuilding construction in September dropped 2 percent to $150.3 billion (annual rate). Pulling the nonbuilding total down was a 72 percent plunge for the “miscellaneous public works” category, which includes such diverse project types as pipelines, mass transit, and site work. The August amount for this category had been boosted by the start of the $3.0 billion Sabal Trail and Florida Southeast Connection natural gas pipeline upgrade project, which will transport natural gas from Alabama through Georgia and into central Florida.

By contrast, the largest miscellaneous public works project reported as a September start was a $244 million landfill project in Staten Island NY. The environmental public works categories in September were mixed, with weaker activity for sewers, down 23 percent; but growth for river/harbor development, up 16 percent; and water supply systems, up 20 percent. Highway and bridge construction in September climbed 17 percent, aided by the start of a $916 million segment of the Loop 202 (South Mountain Freeway) project in the Phoenix AZ area. Also starting in September was the $221 million Port Access Road in the Charleston SC area. New electric utility starts jumped 219 percent in September from a subdued August. Large electric utility projects that contributed to September’s increase were a $1.3 billion natural gas-fired power plant in Virginia, a $600 million power plant coal burner replacement in Minnesota, and a $417 million wind farm in Illinois.

The 3 percent decline for total construction starts on an unadjusted basis during the first nine months of 2016 was due to a mixed pattern by major sector. Nonresidential building year-to-date was down a slight 2 percent, with commercial building up 10 percent, institutional building even with last year, and manufacturing plants down 45 percent. Residential building year-to-date advanced 5 percent, with single family housing up 7 percent while multifamily housing was unchanged. Nonbuilding construction year-to-date fell 14 percent, with public works down 6 percent and electric utilities/gas plants down 29 percent.


Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.