New construction starts in June climbed 11% to a seasonally adjusted annual rate of $896.3 billion, according to Dodge Data & Analytics. The increase marked the second double-digit gain in a row, following the 15% hike that was reported for May. 

Boosting activity in June was a sharp 57% advance for nonresidential building, which benefitted from the start of two massive manufacturing plant projects and two large office projects. The two manufacturing projects were a $6.5-billion uranium processing facility in Oak Ridge Tenn., and a $1.7-billion petrochemical plant in Port Arthur, Texas.

The two large office projects were the $1.8-billion Spiral office tower in New York City and a $665-million office tower in Chicago. Residential building in June grew 4%, helped by growth for multifamily housing. 

The nonbuilding sector (public works and electric utilities) retreated 28% in June, pulling back after the sharp 37% increase reported in May that reflected the start of several large natural-gas pipelines and rail-related projects. 

Through the first six months of 2018, total construction starts on an unadjusted basis were $395.7 billion, up 1% from the same period a year ago. If the volatile electric utility and gas-plant category is excluded, total construction starts during the first six months of 2018 would be up 3% relative to last year.

June’s data raised the Dodge Index to 190 (2000=100), compared to an upwardly revised 170 for May.

“The monthly pattern for construction starts will often reflect the presence or absence of very large projects, and after May received a lift from unusually large projects, it was even more true in June,” said Robert A. Murray, chief economist for Dodge Data & Analytics. 

“Following the lackluster activity in April, the strength shown during May and June enabled the second-quarter average for total construction starts to be up 3% from the first quarter, which itself was up 2% from the final three months of 2017. On that basis, one can say that the expansion for construction starts continued at a modest pace during the first half of 2018. At the same time, it’s not expected that July will get the same support from large projects that took place in June,” Murray said.

“Several features of the first half of 2018 stand out, as shown by the construction start statistics,” Murray continued. “Nonresidential building so far this year has seen gains for manufacturing buildings, educational facilities and amusement-related facilities, while office building starts have stayed close to last year’s pace. 

“However, transportation terminal starts have not proceeded at the same robust volume that occurred in early 2017, and store construction has weakened further. Residential building is seeing surprising resilience from multifamily housing, even as apartment vacancy rates have moved up gradually,” he said. 

“The public-works sector is showing widespread increases this year, outweighing a slightly slower (yet still strong) pace for new pipeline projects compared to a year ago. The electric utility and gas-plant category continues to decline, exerting a downward pull on total construction starts in similarity to what occurred during 2016 and 2017. 

“Although the construction industry is facing increased headwinds during 2018, namely higher material prices and rising interest rates, these have yet to have a discernible negative impact on the broad level of construction starts. 

“On the plus side, the construction industry is benefitting currently from the tailwinds of a strong economy, some easing of bank-lending standards, and greater funding for federal public-works programs as the result of the omnibus appropriations legislation passed in March,” Murray said.

Nonresidential Building

Nonresidential building in June was $402.3 billion (annual rate), up 57% from May. The manufacturing building category received an 18-fold increase in June relative to a weak May, with the primary boost coming from the June start of the U.S. Dept. of Energy’s $6.5-billion uranium-processing facility in Oak Ridge Tenn. 

This massive project will support the nation’s nuclear weapons stockpile and provide uranium for fuel for U.S. Navy submarines and aircraft carriers. If this project is excluded from the June construction start statistics, manufacturing building in June would still have shown a five-fold increase, while nonresidential building would have been up 26% and total construction starts would have been up 2%. 

The other large manufacturing building project entered as a June start was a $1.7-billion petrochemical plant expansion and ethane-steam cracker plant in Port Arthur, Texas. 

The commercial building categories as a group climbed 25% in June, advancing further after moderate gains in April (up 5%) and May (up 7%). Office construction surged 53% in June, led by the start of the $1.8-billion, 64-story Spiral office tower in the Hudson Yards district of New York City, as well as the start of a $665-million, 54-story office building on North Wacker Drive in Chicago. 

Other large office projects in June were a $200-million data center in Ashburn, Va., a $200-million office tower in Denver, and a $145-million data center in Mesa, Ariz. 

Through the first six months of 2018, the top five metropolitan areas in terms of the dollar amount of office construction starts were New York City, Washington, D.C., Chicago, Omaha (due to the May start of a $1.0-billion Facebook data center), and Boston.

Other commercial categories posting June gains were commercial garages, up 22%; store construction, up 18%; and warehouses, up 14%. The warehouse category was helped by large projects such as a $150-million Amazon distribution center in the Birmingham, Ala., area and a $107-million warehouse complex in Fremont, Calif. 

Hotel construction was the one commercial project type to report a June decline, sliding 15%, although the latest month did include the start of several large hotel projects in New York City, such as a $125-million Hard Rock hotel and a $120-million Ritz Carlton.

The institutional building side of nonresidential building increased 11% in June. Health care facilities had a strong month, jumping 103% compared to a lackluster May, led by the $250-million New Trinity Hospital in Minot, N.D., and the $148-million Penn State Health Children’s Hospital in Hershey, Pa.

Educational facilities strengthened 16% in June, featuring university projects such as a $230-million facility at the University of Washington in Seattle and a $225-million facility at the University of Oregon in Eugene, plus the start of large high school projects in Somerville, Mass., ($202 million), Frisco Texas ($200 million), Verona, Wis. ($183 million), and Madera, Calif. ($179 million). 

The top five states in terms of the dollar amount of educational facility starts during the first half of 2018 were Texas, California, New York, Washington and Oregon. 

Of the smaller institutional categories, public buildings (courthouses and detention facilities) registered a 12% gain in June, but declines were reported for transportation terminals, down 16%; religious buildings, down 35%; and amusement-related projects, down 37% (from a May that included groundbreaking for the $764-million expansion to the Washington State Convention Center in Seattle).

Despite its decline, the transportation-terminal category did include the June start of the $374-million North Concourse terminal at Reagan National Airport in Arlington, Va.

Residential Building

Residential building in June was $323.0 billion (annual rate), up 4%. Multifamily housing grew 9% in June, advancing for the second month in a row after weak activity in April. Seven projects valued each at $100 million or more were reported as construction starts in June, compared to six such projects in May. 

Large June projects included the $213-million Aston Martin multifamily tower in Miami, the $195-million multifamily portion of the $260-million Essex Crossing mixed-use building in New York City, and the $186-million multifamily portion of a $215-million mixed-use tower in Boston. 

Through the first half of 2018, the top five metropolitan areas ranked by the dollar amount of multifamily starts were New York City, Miami, Washington, D.C., Boston and Seattle. 

Metropolitan areas ranked six through 10 were San Francisco, Los Angeles, Dallas-Ft. Worth, Philadelphia and Atlanta. The top 10 multifamily metropolitan areas in the first half of 2018 showed a fairly balanced mix of gains and declines relative to last year, with six showing gains (including a 22% increase for New York City), while four showed declines. 

In contrast, the full year 2017 showed declines for seven of the top 10 metropolitan areas. Single-family housing in June grew 2%, and during the first half of 2018 essentially hovered around the improved level of activity that was reported at the end of 2017. 

By region, the first half of 2018 showed this performance for single-family housing compared to last year—the West, up 11%; the South Atlantic, up 5%; the South Central, up 4%; the Northeast, up 2%; and the Midwest, up 1%.

Nonbuilding Construction

Nonbuilding construction in June dropped 28% to $171.0 billion (annual rate), sliding back after the 37% increase that was reported for May. The public-works categories as a group dropped 34% in June after May’s 44% surge. 

To a large extent, the recent up-and-down pattern shown by public works was related to the volatility exhibited by the miscellaneous public-works category, which includes pipelines, mass transit and sitework. The category plunged 67% in June following May’s 161% increase.
May included three substantial natural-gas pipelines as construction starts (the $2.1-billion Mountaineer Xpress Pipeline, the $1.9-billion Gulf Coast Express Pipeline, and the $600-million Gulf Xpress project) plus two large rail projects (the $1.4-billion Westside Purple Line Extension in Los Angeles and the $1.1-billion Green Line Extension in Somerville, Mass). 

By contrast, the two largest miscellaneous public works projects entered as June starts were a $576-million segment of the Atlantic Coast natural-gas pipeline in West Virginia and a $280-million rail project at Phoenix Sky Harbor International Airport. 

At the same time, both pipeline and rail-related construction starts have stayed strong during the first half of 2018, with pipeline starts down only 15% from a robust first half of 2017 while rail-related starts were up 53% compared to last year. 

The environmental public works categories in June weakened from their May amounts, with water supply construction down 9%, river and harbor development down 15%, and sewer construction down 58%. 

Highway and bridge construction was the one public-works category to show growth in June, climbing 25% with the help of projects such as the $312-million I-95 South highway-widening project in the Philadelphia area and the $270-million I-85 North highway-widening project in the Atlanta area. 

The electric utility and gas plant category in June improved 73% from a weak May, with the lift coming from five new wind farms located in Iowa ($375 million and $108 million), Kansas ($300 million), Michigan ($261 million) and Minnesota ($158 million).

The 1% increase for total construction starts on an unadjusted basis for the first six months of 2018 compared to last year was due to a mixed performance by major sector.

Nonresidential building year-to-date dropped 3%, due to this pattern by segment: commercial building down 8%, institutional building down 6%, and manufacturing building up 49%. 

Residential building year-to-date rose 6%, with multifamily housing up 8% and single family housing up 5%.

Nonbuilding construction year-to-date was essentially even with last year, with public works up 9% and electric utilities and gas plants down 48%. 

By major region, total construction starts during the first six months of 2018 showed this behavior: the South Central, up 10%; the South Atlantic, up 4%; the Northeast, down 1%; the Midwest, down 3%; and the West, down 4%.