New Construction Starts in May Edge Up 1 Percent

Public Works Construction Strengthens, Nonresidential Building and Housing Recede; Highways Up.

By Mark S. Kuhar

At a seasonally adjusted annual rate of $651.2 billion, new construction starts in May increased a slight 1 percent from April, according to Dodge Data & Analytics. Public works construction bounced back 30 percent from its subdued April amount, helped by the May start of four large pipeline projects totaling a combined $3.0 billion. This enabled the nonbuilding construction sector (which also includes electric utilities and gas plants) to register a 23 percent gain in May, offsetting modest 4 percent declines for both nonresidential building and housing.

“While May revealed slight improvement over April, the pace of expansion so far this spring has generally slowed following the elevated activity in the first quarter,” stated Robert A. Murray, chief economist for Dodge Data & Analytics. “This is consistent with the up-and-down behavior that’s often been present in the current expansion, and a continuation of this pattern means that renewed strengthening can be expected in the months ahead. On the plus side, long-term interest rates remain quite low, with the 10-year Treasury bill rate easing back to 2.2 percent even as the Federal Reserve raised the federal funds rate another quarter point last week. Numerous state and local bond measures passed in recent years are providing near term support for public works and institutional building. The expected benefits of a new federal infrastructure program, assuming one gets passed during the second half of 2017, would affect construction activity more in 2018. And, while vacancy rates for commercial building and multifamily housing are beginning to rise, the increases witnessed so far have been generally small.”

Nonbuilding Construction

Nonbuilding construction in May was $146.9 billion (annual rate), up 23 percent. The public works categories as a group climbed 30 percent, rebounding from a 48 percent decline in April, as the “miscellaneous” public works category (which includes pipelines) soared 166 percent. The largest pipeline project entered as a construction start in May was the $1.5 billion Revolution Pipeline expansion in western Pennsylvania, which includes a 100-mile natural gas pipeline gathering system that will feed into a cryogenic gas processing plant.

Also entered as a May start were the $690 million Gulf South Coastal Bend Header project in Texas that will deliver natural gas to a liquefaction terminal in Freeport; the $500 million Atlantic Bridge natural gas pipeline expansion in the Northeast (New York, Connecticut, Massachusetts, Maine); and the $300 million Cameron Access natural gas pipeline expansion in Louisiana.

Highway and bridge construction in May grew 5 percent, helped by a $192 million highway project in San Antonio and a $125 million bridge improvement project in the Macon, Ga., area. The top five states in terms of the dollar amount of new highway and bridge construction starts in May were Pennsylvania, Texas, California, Georgia and Florida.

The environmental public works categories retreated in May, with river/harbor development, down 5 percent; water supply construction, down 9 percent; and sewer construction, down 11 percent. The electric utility/gas plant category dropped 3 percent in May after its 71 percent hike in April, with the largest May projects being a $500 million natural gas-fired power plant in Pennsylvania, a $259 million transmission line in California, and a $240 million wind power facility in Texas.

Nonresidential Building

Nonresidential building, at $219.3 billion (annual rate), slipped 4 percent in May. The commercial categories as a group fell 10 percent, with office construction dropping 40 percent following gains of 41 percent in March and 23 percent in April. The two largest office projects entered as May starts were the $300 million American Airlines Trinity Campus in Fort Worth, Texas, and the $166 million General Electric Global Headquarters Building in Boston.

The other commercial categories showed growth in May. Warehouse construction climbed 17 percent, lifted by the start of a $160 million Amazon fulfillment center in the Houston area and an $84 million FedEx distribution center in the Worcester, Mass., area. Store construction advanced 16 percent with the help of a $200 million shopping center shell in Norwalk, Conn.

Hotel construction increased 11 percent, reflecting the start of a $118 million Hilton hotel in Myrtle Beach, S.C., and a $116 million hotel in Monticello, N.Y. The commercial garage category rose 7 percent in May. Manufacturing plant construction jumped 22 percent, lifted by the start of a $975 million chemical plant expansion in Louisiana, a $385 million polyethylene plant in Texas, and a $120 million research lab upgrade in Colorado.

Institutional building retreated 4 percent in May. Education facilities, the largest nonresidential building category by dollar volume, dropped 21 percent after registering a 12 percent gain in April. Even with the decline, there were several noteworthy educational facility projects in May, including a $100 million science and engineering center at Union College in Schenectady, N.Y.; a $93 million engineering building at the University of Rhode Island in Kingston, R.I.; a $76 million dentistry education facility at Texas A&M University in Dallas; and a $75 million high school in the Raleigh, N.C., area.

Declines were also reported for religious buildings, down 10 percent; and the amusement category, down 36 percent; although the latter did include the start of the $127 million Buddy Holly Hall of Performing Arts and Sciences in Lubbock, Texas.

On the positive side, healthcare facilities climbed 38 percent in May with the help of five projects valued at $100 million or more, led by the $442 million Marcus Tower at Piedmont Hospital in Atlanta and a $265 million University of Colorado hospital in the Denver area. The public buildings category advanced 51 percent from a lackluster April, reflecting the start of $125 million detention facility in Phoenix, while the transportation terminal category posted a 23 percent gain in May.

Residential Building

Residential building was $284.9 billion (annual rate) in May, down 4 percent. Multifamily housing retreated 10 percent following increases over the previous two months that saw activity rise 20 percent. There were seven multifamily projects valued at $100 million or more that reached groundbreaking in May, led by a $450 million multifamily high-rise in lower Manhattan, N.Y., the $200 million multifamily portion of a $240 million multifamily/hotel mixed-use high-rise in Chicago, and a $200 million multifamily high-rise in Boston.

In May, the top five metropolitan areas in terms of the dollar amount of multifamily starts were the following – New York, Los Angeles, Philadelphia, Chicago and Boston.

Single-family housing settled back 2 percent in May, with its upward track pausing for the third month in a row after showing steady growth during the fourth quarter of 2016 and the first two months of 2017. By major region, single family housing in May revealed this performance – the West, down 7 percent; the Midwest, down 5 percent; the South Atlantic, up 1 percent; the South Central, up 2 percent; and the Northeast, up 4 percent. One plus for single family housing going forward is the recent retreat in the cost of financing, with the 30-year fixed mortgage rate slipping to 3.9 percent in early June, after reaching 4.3 percent in late 2016.

Year-To-Date

Through the first five months of 2017, total construction starts on an unadjusted basis were $274.3 billion, down 5 percent from the same period a year ago. If the volatile manufacturing plant and electric utility/gas plant categories are excluded, total construction starts during the first five months of 2017 would be up 2 percent relative to last year.

The 5 percent decline for total construction starts on an unadjusted basis during the first five months of 2017 was due to a varied pattern by major sector.

• Nonbuilding construction fell 25 percent year-to-date, with electric utilities/gas plants down 67 percent while public works construction was down just 3 percent.
• Nonresidential building grew 5 percent year-to-date, with institutional building, up 17 percent; commercial building, down 5 percent; and manufacturing building, down 9 percent.
• Residential building year-to-date was flat, with single family housing up 8 percent while multifamily housing decreased 17 percent. By geography, total construction starts in the January-May period of 2017 showed this behavior – the Midwest, down 18 percent; the South Central, down 14 percent; the Northeast, down 3 percent; the West, unchanged; and the South Atlantic, up 8 percent.

Additional perspective comes from looking at 12-month moving totals, in this case the 12 months ending May 2017, versus the 12 months ending May 2016. On this basis, total construction starts were up 3 percent. By major sector, nonbuilding construction fell 12 percent, with electric utilities/gas plants down 41 percent while public works slipped 2 percent. Nonresidential building increased 14 percent, with manufacturing building, up 20 percent; institutional building, up 16 percent; and commercial building, up 11 percent. Residential building grew 3 percent, with single family housing up 7 percent while multifamily housing fell 6 percent.