Dive Brief:

• After posting a steep decline to begin 2023, the Dodge Momentum Index rebounded 1.9% in February, providing further evidence that an economic soft landing could be in the cards for construction.
• The uptick in the DMI, a forward-looking gauge of construction planning, was led by a 2.9% increase in the institutional component. That includes buildings in the education, healthcare and public sectors.  
• Planning for commercial buildings, which encompass warehouses, offices and retail, was up 1.4%, according to a report from the Dodge Construction Network. The DMI typically leads actual construction activity by 12 months.

Dive Insight:

Sarah Martin, Dodge’s associate director of forecasting, said despite the more challenging economic conditions, the new data tracks closely with past building cycles.

“The continued elevation in the DMI should provide hope that construction activity will grow in 2024,” Martin said in the release, noting that owners and developers tend to plan out projects until well after a downturn starts. “During the Great Recession, for example, the DMI did not substantially decline until 2009. Therefore, the anticipated mild economic growth in 2023 could cause the DMI to moderate over the year, but it is unlikely to fall below historical norms.”   

The upbeat numbers were in stark contrast to January’s 9% decline in the DMI, which was then followed by a 27% plunge in actual starts. Both of those metrics came amid challenging month-over-month comparisons to a surprise flurry of activity at the end of 2022. The initial dip in DMI at the beginning of 2023, for example, came after months of gains in the index.

Meanwhile, other economists have been pushing the possibility of recession further out. Ken Simonson, chief economist at the Associated General Contractors of America said this week he doesn’t anticipate a downturn in 2023.

Top sectors

In February, the boost in institutional planning was driven by education and healthcare projects, particularly from continued investment in research laboratories, which have thrived during the pandemic.

Commercial plans were bolstered by an almost 20% boost in Dodge’s office category, which includes data centers, another construction sector darling since the onset of COVID-19.

Also, when looked at from an annual perspective, the dip in planning and starts at the beginning of the year now appears nominal. On a year-over-year basis, the DMI remains 43% higher than in February 2022. The commercial component is up 55%, and the institutional component has gained 22% over that period.

A total of 22 projects with a value of $100 million or more entered planning in February, Dodge reported. The leading commercial projects included:

• The $500 million Northwestern Mutual headquarters in Milwaukee, Wisconsin.
• The $375 million Legacy Highlands warehouse and retail project in Beaumont, California.

The leading institutional projects were:

• The $500 million University of Michigan residence and dining hall in Ann Arbor, Michigan.
• The $213 million Center of Innovation laboratory building in Emeryville, California. 

Martin said other factors were increasing how long it takes plans to materialize into projects, meaning continued construction activity could get stretched out well beyond the usual 12-month timeframe that the DMI covers.

“The lag from planning to groundbreaking has been on the rise amidst labor and supply shortages, suggesting that February's growth is likely indicative of mid-2024 strength in construction starts,” she said.