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February Construction Starts Dip 3%

Two of the Three Main Construction Sectors Registered Weaker Activity in February.

At a seasonally adjusted annual rate of $697.4 billion, new construction starts in February dropped 3% from the previous month, according to Dodge Data & Analytics. The February decline returned construction starts to the downward path that emerged during the closing months of 2018.

Two of the three main construction sectors registered weaker activity in February – nonbuilding construction fell 8%, due to a pullback by its public works segment, while residential building slipped 3%. Meanwhile, nonresidential building in February was able to hold steady with its January pace.

Highway and bridge construction fell 7%.

“The pace of construction starts has been lackluster in early 2019,” stated Robert A. Murray, chief economist for Dodge Data & Analytics. “The public works sector has retreated, likely affected by harsh winter weather conditions and the fact that fiscal 2019 federal appropriations for several programs were not finalized until mid-February. With funding levels now set, including a 2% increase for the federal-aid highway program, it’s expected that public works will show improvement in coming months. For residential building, single-family housing remains sluggish, as affordability constraints continue to dampen demand even as mortgage rates have settled back, while a more cautious lending stance by banks may now be starting to restrain multifamily development. Nonresidential building so far in 2019 has not yet seen the same magnitude of very large projects that reached groundbreaking during 2018.”

Nonbuilding Construction

Nonbuilding construction in February was $153.6 billion (annual rate), down 8% from January. The public works categories as a group dropped 15%, retreating for the second month in a row, while the electric utility/gas plant category climbed 34%.

Highway and bridge construction fell 7% after a 2% decline in January, and February’s activity was down 12% from the average monthly pace during 2018. Large highway projects that reached groundbreaking in February were a $185 million highway expansion in Phoenix and a $178 million highway expansion in San Antonio.

The miscellaneous public works category, which includes such diverse project types as pipelines and rail transit projects, plunged 49% in February after soaring 114% over the previous two months, with January lifted by the start of the $1.0 billion Midship natural gas pipeline in Oklahoma. By contrast, the largest miscellaneous public works project entered as a February construction start was a $127 million natural gas pipeline in New Jersey.

Sewer construction in February retreated 8%, despite the start of a $267 million waste water treatment plant expansion in the Honolulu area. The remaining two public works project types registered gains in February, with river/harbor development, up 25%; and water supply construction, up 11%. The 34% jump for the electric utility/gas plant category in February reflected the start of two large natural gas-fired power plants, a $1.0 billion plant in Saint Clair, Mich., and a $937 million plant in Willis, Texas, plus the start of a $375 million solar power plant in the Valdosta, Ga., area.

Residential Building

Residential building in February was $299.3 billion (annual rate), down 3% as both sides of the housing market showed decreased activity. Multifamily housing fell 7%, retreating after its 17% rebound in January. Despite the decline, there were still six multifamily projects valued at $100 million of more that reached groundbreaking in February.

The next largest multifamily projects were the $154 million multifamily portion of the $170 million Archer Green mixed-use complex in the Jamaica Queens area of New York and the $144 million multifamily portion of the $240 million Hoffman Town Center project (blocks 4 and 5) in Alexandria, Va.

Single-family housing in February receded 2% from January, continuing the modest slippage that emerged during last year’s fourth quarter. By geography, single family housing performed as follows in February relative to January – the West, down 5%; the South Central, down 2%; the South Atlantic, down 1%; the Midwest, unchanged; and the Northeast, up 7%.

Nonresidential Building

Nonresidential building in February was $244.5 billion (annual rate), basically the same as January’s volume. The commercial building categories as a group rose 2%, which followed a 4% gain in January. Warehouse construction surged 33% in February, led by a $200 million Amazon distribution facility in Oak Creek, Wis., an $85 million Costco distribution center in Katy, Texas, and a $70 million Goodyear Tire distribution center in Forney, Texas.

Hotel construction climbed 22%, reflecting the start of the $372 million hotel portion of the $500 million Circa Resort and Casino in Las Vegas. Store construction improved 11%, helped by the start of the $64 million Macy’s Men’s Store redevelopment in San Francisco, and the commercial garage category grew 3%.

Office construction was the one commercial project type to report a February decline, falling 21% after its 18% hike in January that featured such projects as the $550 million Reston Gateway office complex in Reston, Va., and the $350 million Hines office tower in Houston.

Even with the decline, there were still noteworthy office projects that were entered as February starts, such as the $375 million Block 185 redevelopment in Austin, Texas, and the $100 million Cannon House office renovation in Washington, D.C. There were also several large data center projects (included in the office category) that reached groundbreaking in February, led by a $175 million Google data center expansion in Moncks Corner, S.C., and two data centers in Ashburn, Va., valued at $120 million each.

The institutional side of nonresidential building was unchanged in February after the 2% decline reported in January. The healthcare facilities category had a strong February, increasing 26% with the lift coming from such projects as the $265 million expansion to the Children’s Hospital of Wisconsin in Wauwatosa, Wis., and the $176 million Colorado Center for Personalized Medicine in Aurora, Colo.

Educational facilities in February advanced 6%, led by the $200 million renovation of a healthcare research facility at the University of Pittsburgh in Pittsburgh, a $96 million engineering building at the University of Texas in Austin, Texas, plus large high school projects in Millersville, Pa., ($87 million), Hammond, Ind., ($78 million), Wentzville Mo., ($76 million), and Wimauma, Fla., ($76 million).

On the negative side, the public buildings category plunged 45% after its 59% jump in January that included the $525 million Utah State Prison relocation in Salt Lake City. Decreased construction starts were also reported in February for transportation terminal projects, down 35%; church construction, down 23%; and amusement-related work, down 7%. The manufacturing plant category dropped 14% in February after a 13% January gain, although the latest month did include the start of a $135 million lumber production facility in Albany, Ga., and a $105 million window manufacturing plant in Goodyear, Ariz.

 Monthly Construction Starts (Seasonally Adjusted Annual Rates, In Millions of Dollars) Feb. 2019

Jan. 2018

% Change
Nonresidential Building $244,481 $244,744 -0-
Residential Building $299,350 $310,122 -3
Nonbuilding Construction $153,583 $167,430 -81
TOTAL Construction $697,414 $722,296 -3
Source: U.S. Dept. of Commerce

During the first two months of 2019, total construction starts on an unadjusted basis were $99.3 billion, down 12% from the same period a year ago which had been lifted by the start of the $2.0 billion NEXUS natural gas pipeline in Ohio and Michigan and the $1.3 billion domed NFL stadium in Las Vegas. On a 12-month moving total basis, total construction starts for the 12 months ending February 2019 were able to remain essentially even with the corresponding amount for the 12 months ending February 2018.

The 12% shortfall for total construction starts on an unadjusted basis during the first two months of 2019 compared to last year was the result of lower activity for each of the three main sectors. Residential building fell 15% year-to-date, with single family housing, down 13%; and multifamily housing, down 17%.

Additional insight is provided by looking at 12-month moving totals, in this case the 12 months ending February 2019 versus the 12 months ending February 2018, which offers less volatility than is present with year-to-date comparisons of just two months. On this basis, total construction starts for the most recent 12 months essentially matched the amount of the previous period.

By major sector, residential building grew 2%, with 2% gains for both single family and multifamily housing. Nonresidential building was unchanged from the previous period, with manufacturing building, up 21%; commercial building, up 2%; and institutional building, down 5%. Nonbuilding construction dropped 4%, with public works, down 2%; and electric utilities/gas plants, down 16%. By geography, total construction starts showed this pattern for the most recent 12 months compared to the previous period – the South Central, up 9%; the West, up 3%; the Midwest and South Atlantic, each unchanged; and the Northeast, down 15%.

Nonresidential building dropped 13% year-to-date, with commercial building, down 5%; institutional building, down 18%; and manufacturing building, down 29%. Nonbuilding construction retreated 6% year-to-date, as a 17% decline for public works was partially offset by a 116% surge for the electric utility/gas plant category after a very weak first two months of 2018.