The Market Is Sending Mixed Signals at the Mid-Way Point in the 2019 Construction Season.
Through the first five months of 2019, total construction starts on an unadjusted basis were $295.0 billion, down 9% from the same period a year ago, according to according to Dodge Data & Analytics. On a 12-month moving total basis, total construction starts for the 12 months ending May 2019 were 2% below the amount reported for the 12 months ending May 2018.
The 9% decline for total construction starts on an unadjusted basis during the first five months of 2018 was the result of decreased activity for each of the three main sectors.
- Nonresidential building settled back 3% year-to-date, with 8% declines for both institutional building and manufacturing building that were partially offset by a 3% gain for commercial building.
- Nonbuilding construction dropped 11% year-to-date, as a 24% plunge for public works was countered by a 128% jump by electric utilities/gas plants. The miscellaneous public works category plummeted 54% year-to-date given the comparison to a strong first five months of 2018 that included several large pipeline projects. If the miscellaneous public works category is excluded, public works during the first five months of 2019 would be down a more moderate 7%.
- Residential building year-to-date dropped 12%, with single family housing down 9% and multifamily housing down 19%. By geography, total construction starts during the January-May period of 2019 showed this behavior compared to last year – the South Central, down 1%; the Northeast, down 5%; the Midwest, down 8%; the South Atlantic, down 12%; and the West, down 15%.
Additional insight is made possible by looking at 12-month moving totals, in this case the 12 months ending May 2019 versus the 12 months ending May 2018. On this basis, total construction starts were down 2% from the previous period. By major sector, nonresidential building increased 4%, with manufacturing building, up 21%; commercial building, up 8%; and institutional building, down 3%. Residential building dropped 2%, with single family housing, down 2%; and multifamily housing, down 1%. Nonbuilding construction fell 10%, with public works, down 14%; while electric utilities/gas plants, up 16%.
Most Recent Month
At a seasonally adjusted annual rate of $757.0 billion, new construction starts in May – the most current month available at press time – climbed 10% from April, according to Dodge Data & Analytics.
The increase continues the double-digit swings that were reported during the previous two months, when a 16% hike for total construction starts in March was followed by a 15% decline in April.
- Each of the three main construction sectors contributed to May’s 10% gain. Nonbuilding construction rebounded 32% after depressed activity in April, lifted by an especially strong amount of new power plant starts and an $800 million light rail project in the Minneapolis area.
- Nonresidential building improved 7%, supported by groundbreaking for two very large manufacturing plant projects. Highway and bridge construction eased back 2%.
- Residential building edged up 2%, with modest gains for both single-family housing and multifamily housing.
“The presence of very large projects frequently causes volatility in the month-to-month pattern of construction starts, and that’s certainly been the case during March, April, and now May,” stated Robert A. Murray, chief economist for Dodge Data & Analytics. “Amidst the volatility, the pace of construction starts has on balance been sluggish so far in 2019, as activity has been generally lower than the healthy volume witnessed during the first half of last year. For public works, there was some dampening in early 2019 arising from the partial government shutdown, although highway and bridge construction has shown improvement in recent months. For nonresidential building, the boost coming from very large projects so far this year has not been of the same magnitude as what took place last year. For residential building, multifamily housing has pulled back from last year’s strength, while single-family housing has been essentially flat. At the same time, there are still positive factors in the current environment affecting construction. Federal appropriations for fiscal 2019 are in place, and funding support is coming from the state and local bond measures passed in recent years. Market fundamentals for commercial building and multifamily housing strengthened during 2018 and early 2019, while interest rates remain low. As 2019 proceeds, it’s expected that the shortfall between this year’s level of construction starts compared to last year will narrow.”
Nonbuilding Construction
Nonbuilding construction in May was $194.4 billion (annual rate), a 32% increase that followed a 33% slide in April. The electric utility/gas plant category surged 552% in May, bouncing back from a very weak April to a volume more than twice the average monthly pace during 2018. This reflected the start of five power plant projects valued each at $200 million or more – a $550 million natural gas-fired power plant in Ohio, the $450 million Emmons-Logan Wind Energy Center in North Dakota, the $300 million Ida Grove Wind Farm in Iowa, the $200 million Southern Oak Solar Energy Center in Georgia, and a $200 million electric substation upgrade in Wyoming.
The public works categories as a group slipped 1% in May, due to a mixed performance by the individual project types. The miscellaneous public works category, which includes such diverse segments as site work, rail transit and pipelines, increased 20% as the $800 million Metro Green Line Southwest light rail transit in Minnetonka, Minn., was included as a May start.
Water supply construction rose 23% in May, helped by such projects as the $92 million Oak Ridge Outfall Treatment Facility in Oak Ridge, Tenn., and an $87 million water reclamation plant upgrade in Valencia, Calif.
On the negative side, the river/harbor development category dropped 22% in May, while sewer construction retreated 24% even with the start of a $118 million wastewater pumping station upgrade in Honolulu, Hawaii.
Highway and bridge construction eased back 2% in May following 8% improvement over the previous two months. The top five states in terms of the dollar amount of highway and bridge construction starts in May were – California, Texas, Illinois, New York, and Florida.
Nonresidential Building
Nonresidential building in May was $266.6 billion (annual rate), up 7% following a 16% drop in April. The manufacturing plant category provided much of the lift, soaring 350% as two very large manufacturing plant projects were included as May construction starts – the $1.6 billion Shintech polyvinyl chloride manufacturing facility in Plaquemine, La., and a $600 million steel mill expansion in Osceola, Ariz.
The commercial categories as a group receded 5% in May, the result of a slower pace for office construction, down 17%; and commercial garages, down 26%. Even with the decline, office construction in May did include the start of several noteworthy projects, such as the $263 million George H.W. Bush office building in Austin, Texas, a $258 million office tower in Nashville and a $250 million office/research development building in south San Francisco.
Two large data center projects also reached groundbreaking in May – a $150 million Microsoft data center in Goodyear, Ariz., and the $135 million Raging Wire data center in Ashburn, Va.
On the plus side, warehouse construction in May jumped 39%, helped by groundbreaking for a $182 million distribution center in the Bronx, N.Y., and the $155 million TJX Home Goods distribution center in Lordstown, Ohio.
Hotel construction in May grew 9%, featuring the start of the $305 million hotel portion of the $700 million Philadelphia Live Casino and Hotel in Philadelphia. Store construction, while remaining at a subdued volume, grew 4% in May.
The institutional building categories as a group settled back 2% in May. Educational facilities, the largest nonresidential building category by dollar volume, slipped 1% in May, although the latest month did include groundbreaking for the $205 million Wellesley College science center renovation in Wellesley, Mass., and a $150 million museum renovation at the University of Michigan in Ann Arbor, Mich.
The public buildings category (courthouses and detention facilities) dropped 3% in May, and transportation terminal work fell 63% from April that included the start of the $972 million terminal building portion of the $1.3 billion new airport terminal project at Kansas City International Airport.
At the same time, healthcare facilities strengthened 27% in May, reflecting the start of the $500 million MetroHealth Hospital facility in Cleveland, the $331 million University of Texas Southwest Medical Center Brain and Cancer Center building in Dallas and a $182 million hospital tower in Turnersville, N.J. Amusement-related work jumped 54% in May, led by the $237 million casino portion of the Philadelphia Live Casino and Hotel project. The religious building category, while still remaining at a weak volume, increased 19% in May.
Residential Building
Residential building in May was $295.9 billion (annual rate), a 2% gain that marked the first increase after three straight months of decline. Single-family housing improved 2%, showing some growth after the sluggish performance reported earlier in 2019.
By geography, single family housing registered this pattern during May – the South Atlantic, up 4%; the Midwest, up 2%; the Northeast, up 1%; and the South Central and West, each unchanged from the previous month. The pace for single family housing in May was still 7% below the average monthly pace during 2018. Multifamily housing in May also grew 2%, edging up for the second month in a row after a 12% decline back in March.
There were eight multifamily projects valued each at $100 million or more that reached groundbreaking in May, led by the $653 million multifamily portion of the $850 million One Chicago Square Apartment Towers in Chicago, the $266 million multifamily portion of the $360 million Four Seasons mixed-use hotel/condominium project in Nashville and a $160 million multifamily high-rise in Jersey City, N.J.
Construction Activity
GlobalData is tracking 11,208 construction projects in the United States, both in the public and private sector, at all stages of development from announcement to execution; collectively, these projects are valued at $3.7 trillion. The top 10 selected U.S. states account for nearly 60% of the entire U.S. construction market. They are:
- California.
- Texas.
- New York.
- Florida
- Washington.
- Illinois.
- Pennsylvania.
- Georgia.
- Ohio.
- North Carolina.
With a total of 1,302 projects worth $524.6 billion, California has both the largest number and value of projects in the U.S. construction project pipeline. California is home to more megaprojects than any other state, with its top 10 largest projects valued at $139.5 billion.
Six of these are transport infrastructure projects and two are energy and utilities projects. Topping the list is the $79 billion California High-Speed Rail Line, the largest project in the U.S. construction pipeline. Thanks to its dominance in the U.S. energy sector, Texas has the highest number and value of energy and utilities projects in the construction project pipeline.
GlobalData is tracking 1,034 projects in the state with a total value of $425.1 billion. Energy and utilities projects dominate with a value of $152.7 billion, followed by mixed-used developments and infrastructure projects with values of $67.9 billion and $67.1 billion respectively.
GlobalData is tracking 894 projects in New York with a total value of $409 billion, of which 63% of the value are in the pre-execution and execution stages as of May 2019. Of the total number of projects tracked by GlobalData in Washington, 89 are residential buildings, 72 are commercial and leisure and 83 are mixed-use developments. Some of these projects are related to Amazon, Microsoft or Google or the expansion thereof, meaning office buildings and apartment buildings to house their workers.
Microsoft, for example, is currently undertaking the redevelopment of its headquarters building in Washington. The project is costing $1 billion, and is set to start this year.
Among the major contractors building large construction projects in Illinois are Jacobs, Arcadis and Ardmore Roderick, which were awarded the construction contract to complete the $4.7 billion Red and Purple Lines Modernization in Chicago while Thyssen-Krupp Industrial Solutions was selected to build the Tuscola Fertilizer Plant.
Construction Spending
The U.S. Census Bureau reported that construction spending during May 2019 was estimated at a seasonally adjusted annual rate of $1,293.9 billion, 0.8% (±1.2%) below the revised April estimate of $1,304.0 billion. The May figure is 2.3% (±1.5%) below the May 2018 estimate of $1,324.3 billion.
During the first five months of this year, construction spending amounted to $498.8 billion, 0.3% (±1.3%) below the $500.3 billion for the same period in 2018.
In May, the estimated seasonally adjusted annual rate of public construction spending was $340.6 billion, 0.9% (±2.1%) below the revised April estimate of $343.7 billion.
- Highway construction was at a seasonally adjusted annual rate of $111.6 billion, 3.2% (±6.1%) below the revised April estimate of $115.4 billion.
- Educational construction was at a seasonally adjusted annual rate of $79.3 billion, nearly the same as (±2.6%) the revised April estimate of $79.3 billion.
- Spending on private construction was at a seasonally adjusted annual rate of $953.2 billion, 0.7% (±0.7%) below the revised April estimate of $960.3 billion.
- Residential construction was at a seasonally adjusted annual rate of $498.9 billion in May, 0.6% (±1.3%) below the revised April estimate of $501.7 billion.
- Nonresidential construction was at a seasonally adjusted annual rate of $454.3 billion in May, 0.9% (±0.7%) below the revised April estimate of $458.5 billion.
“Private construction spending has been slipping for several months,” said Associated Builders and Contractors (ABC) Chief Economist Anirban Basu. “Commercial construction spending decreased nearly 14% during the past year, which represents a stark reversal from previous trends when America’s consumer-spending-led expansion produced substantial demand for commercial construction. That said, commercial spending is up 102% compared to May 2010. Other private construction categories such as office and lodging have also been weak as rising construction and capital costs render pro formas more problematic. There are also growing concerns regarding overbuilding in certain segments/markets.
“What was different about today’s release was the decline in public construction spending,” said Basu. “While the drop was reasonably small on a monthly basis, it stands in stark contrast to the preexisting trend. With the economic expansion entering its record 11th year, state and local government finances are generally in good shape, leaving more money to spend on infrastructure. Based on broad economic dynamics and fiscal considerations, there is little reason to believe that the dip in May portends a slowdown in infrastructure spending during the months ahead.”
Housing Starts
It takes 400 tons of aggregates to construct the average modern home, according to the National Stone, Sand and Gravel Association.
Total housing starts posted a 0.9% decrease in May (1.269 million units) compared to an upwardly revised April estimate of 1.281 million units, according to the joint data release from the Census Bureau and HUD. Relative to May 2018, total starts are 4.7% below the annual pace of 1.332 million units.
Single-family production in May posted a monthly decline, decreasing 6.4% to a seasonally adjusted annual rate of 820,000. Single-family starts in April were revised up to 876,000 units. The three-month moving average for single-family in May is 843,000 units.
On a year-to-date basis, single-family starts are 5.1% lower as of May relative to the first five months of 2018. Single-family permits, a useful indicator of future construction activity, rose 3.7% in May (815,000 units) compared to April but have registered a 5.8% loss thus far in 2019 compared to last year. This is in line with the NAHB/Wells Fargo Housing Market Index, which held builder confidence in the market for newly-built single-family homes steady at 64 in June but remains lower on a year-over-year basis.
Regional data show, on a year-to-date basis, positive conditions for single-family construction only in the South (+0.5 percent). Single-family construction is down 13.0% in the West, 11.9% in the Midwest, and 6.8% in the Northeast.
Multifamily starts (2+ unit production) posted an increase of 10.9% in May to a 449,000 annual rate compared to April. After a slow start to the year, multifamily development is moving closer to our forecast of leveling-off conditions. On a year-to-date basis, multifamily 5+ unit production is down 5.2% thus far in 2019, while multifamily 5+ unit permitting is trending higher with an increase of 2.9% relative to the first five months of 2018.
Sales of newly built, single-family homes fell 7.8% to a seasonally adjusted annual rate of 626,000 units in May, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. On a year-to-date basis however, new home sales for 2019 are 4% higher than the same period in 2018.
“The report shows growth in sales in the $200,000-300,000 price range, which indicates middle-class demand for housing is being supported by low rates and solid employment,” said Greg Ugalde, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Torrington, Conn.
“The May numbers are a bit surprising given lower mortgage interest rates and solid builder confidence data,” said NAHB Chief Economist Robert Dietz. “Based on these conditions, we expect June new home sales figures will show a rebound.”
A new home sale occurs when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the May reading of 626,000 units is the number of homes that would sell if this pace continued for the next 12 months.
The inventory of new homes for sale was 333,000 in May, representing a 6.4 months’ supply. The median sales price was $308,200. The median price of a new home sale a year earlier was $316,700.
Regionally, and on a year to date basis, new home sales are 7.5 percent higher in the South and 3.4 percent higher in the West. Sales are down 13.3 percent in the Northeast and 3.2 percent in the Midwest.
Housing Permits
Over the first five months of 2019, the total number of single-family permits issued year-to-date (YTD) nationwide reached 342,116. On a year-over-year (YoY) basis, this is a 5.8% decline over the May 2018 level of 363,327.
Year-to-date ending in May, single-family permits reported declines in all four regions. The Midwest, West, South, and the Northeast declined by 10.6%, 11.0%, 2.8%, and 1.9%, respectively, compared to the same time period in 2018. The Southern region had the highest growth in multifamily (12.7%) while the West recorded a decline in multifamily permits growth (-4.6%) during the last 12 months.
Between May 2018 YTD and May 2019 YTD, nine states and the District of Columbia saw growth in single-family permits issued while 40 states registered a decline. Minnesota reported no change. The District of Columbia recorded the highest growth rate during this time at 110.2% from 49 to 103 permits issued while single-family permits in South Dakota declined by 25.0%, from 1,153 in 2018 to 865 in 2019. The 10 states issuing the highest number of single-family permits combined accounted for 61.5% of the total single-family permits issued.
Year-to-date, ending in May 2019, the total number of multifamily permits issued nationwide reached 195,848. This is 4.4% ahead of its level over the year 2018, 187,605.
Between May 2018 YTD and May 2019 YTD, 27 states and the District of Columbia recorded growth while 23 states recorded a decline in multifamily permits. District of Columbia led the way with a sharp rise (238.0%) in multifamily permits from 847 to 2863, while North Dakota had the largest decline of 77.5% from 413 to 93. The 10 states issuing the highest number of multifamily permits combined accounted for 63.6% of the multifamily permits issued.