New construction starts in August dropped 11% to a seasonally adjusted annual rate of $554.5 billion, according to Dodge Data & Analytics. Declines were reported for each of construction’s three main sectors—nonresidential building and housing pulled back from their improved July pace, while nonbuilding construction continued to recede from the heightened performance witnessed earlier in 2015.
During the first eight months of 2015, total construction starts on an unadjusted basis were $446.1 billion, up 15% from the same period a year ago. If the volatile electric-utility and gas plant category is excluded, total construction starts during the first eight months of 2015 would be up a more moderate 7% relative to last year.
The August statistics lowered the Dodge Index to 117 (2000=100), down from the 133 reported for both June and July.
“While August construction starts were notably subdued compared to recent months, it’s useful to keep in mind that construction starts on a monthly basis will often show an up-and-down pattern, and the year-to-date statistics depict an expansion that’s still proceeding,” said Robert A. Murray, chief economist for Dodge Data & Analytics.
“For nonresidential building, the early months of 2015 did show some deceleration for the commercial categories, consistent with the slower pace of economic growth in the first quarter, and manufacturing plant construction is now retreating after the exceptional amount of energy-related plant investment in 2014,” Murray said. “At the same time, market fundamentals for commercial building (namely rents and occupancies) are still positive, and commercial building projects at the planning stage have recently increased. This suggests that the pace of commercial building starts, while lackluster in August, should soon pick up.
“For residential building, the August decline was due to a slower pace for multifamily housing after a particularly strong July, and the upward trend for this sector remains intact.
“For nonbuilding construction, highway and bridge starts have slipped from the elevated activity reported earlier in 2015, and at midyear there was uncertainty related to the depleted Highway Trust Fund. At the end of July, Congress approved $8 billion to shore up the Highway Trust Fund, although there’s still some uncertainty as to when Congress will be able to pass a new multiyear federal transportation bill,” Murray said.
Nonresidential building in August dropped 16% to $160.7 billion (annual rate). The commercial building categories as a group were considerably weaker for the month, sliding 24%. Hotel construction in August plunged 35%, pausing from the strength of recent months, although August did include the start of a $122-million hotel in New York City.
Office construction, falling 34%, was down a similar amount in August. The largest office project reported as an August start was a $211-million data center in McCarran, Nev., while the next largest office projects were each valued at $30 million, including an office building renovation in Brooklyn, N.Y.; the initial phase of the Google office campus in Boulder, Colo.; and a four-story office building in the Dallas area.
Stores and warehouses managed to register slight gains in August, rising 3% and 2% respectively. Store construction was helped by the start of a $65-million outlet center in Berkshire Township, Ohio; while warehouse construction received support from a $100-million distribution center in St. Louis.
The manufacturing plant category in August slipped 2%, although the latest month did include the $255-million expansion of the General Motors assembly plant in Roanoke, Ind.
The institutional building group in August dropped 11%, reflecting declines for the majority of the institutional categories. Health care facility construction fell 28%, retreating from its generally improved activity during the previous four months. The largest health care projects that reached groundbreaking in August were a $55-million health care center addition in Ithaca, N.Y.; a $53-million hospital addition in Aurora, Ill.; and a $53-million neuroscience center in St. Paul.
Other institutional categories with substantial August declines were transportation terminals, down 39%; and amusement and recreational buildings, down 43%.
While the public buildings category fell 14% in August, it did include the start of a $221-million project to restore the Wyoming State Capitol in Cheyenne. On the plus side, the educational facilities category in August advanced 17%, lifted by the start of the $705-million National Bio and Agro-Defense Facility in Manhattan, Kan., which is a biocontainment laboratory for the Dept. of Homeland Security that will study diseases affecting the nation’s agricultural industry and public health.
The educational facilities category also included groundbreaking for several large high schools, located in Katy, Texas ($161 million); Beaverton, Ore. ($125 million); and Pflugerville, Texas ($104 million).