Following robust increases in the value of new construction starts in May and June, 14% and 11% respectively, July starts dropped 9% to a seasonally adjusted annual rate of $817.4 billion, according to the latest report from Dodge Data & Analytics. This contraction forced the Dodge Momentum Index down to a reading of 173 from a 2018 high of 190 in June.
The pace of residential and nonbuilding starts remained relatively unchanged through the end of July, but the value of nonresidential starts plunged 22% to an annual rate of $318 billion, particularly noteworthy since June saw activity in that sector increase by 59%. As is often the case with such month-to-month variations in start values, however, July's drop in new nonresidential activity is due to the absence of the very large projects that buoyed June's figures.
For example, June's start figures benefited from projects like Hudson Yards' $1.8 billion skyscraper The Spiral and a $6.5 billion uranium processing plant in Tennessee. Robert Murray, Dodge chief economist, called this level of activity unsustainable.
Even with the seesaw in month-to-month values, however, January-through-July starts were up 2% compared to the same period in 2017. Without the wild swings in the electric utility/gas plant sector, year-over-year starts for the first seven months of 2018 would have been up 5%.
In a breakdown of the nonresidential sector, the office building category was down 23% from June, but July did see three large projects in that category get underway, including a $750 million data center for Facebook in Huntsville, Alabama. Warehouse construction starts fell 1% in July, even though three Amazon fulfillment centers in Washington, Oklahoma and New Jersey started construction.
Institutional building category starts also saw a drop in July, including a 12% decline for educational projects and a 35% decline in healthcare facilities.
Good news for the nonresidential sector, however, came in the form of an uptick in both hotel (+37%) and transportation terminal (+28%) projects. Major starts in July in those categories included the $450 million Omni Boston Seaport Hotel in Boston, the $212 million phase of the $300 million Arman Hotel and Condominiums in New York City, a $650 million terminal renovation at Denver International Airport and a $268 million concourse project at Nashville International Airport.
Nonbuilding held its own in July with a starts value of $172.8 billion thanks to an 8% uptick in highway and bridge construction, a 70% jump in sewer construction and five wind farm starts — three new facilities in Iowa totaling $836 million and two in North Dakota totaling $310 million.
All in all, Murray said the overall trend for the industry is positive, despite the challenges posed by higher material prices and interest rates, negative drags that have been counterbalanced by a healthy general economy, more money for public works projects and some loosening of lending restrictions. "Amidst the monthly ups-and-downs," Murray said, "the broad trend for construction starts during 2018 remains one of modest expansion.”