Dive Brief:
- The value of total construction starts in November fell 12% from October to a seasonally adjusted rate of $650.5 billion, according to Dodge Data & Analytics.
- Nonresidential starts dropped 14% in November, following a 30% plunge in October, while the non-building category fell 32%, more than erasing its 27% gain in October. Residential starts rose modestly at 1% as single-family activity balanced out a decline in multifamily starts.
- The Dodge Index fell to 138, down from October's reading of 157. According to Robert Murray, Dodge's chief economist, the past three months have averaged only a 1% drop in construction starts compared with the average of activity from January to August.
Dive Insight:
Late last month, in an analysis of U.S. Commerce Department data, Bloomberg reported that building activity in the apartment market was beginning to cool after achieving its fastest annualized rate in almost 30 years in October. The number of multifamily permits was still climbing as of the date of Bloomberg's analysis, but apartment construction was nearing its pre-recession crest. What could have a negative impact on multifamily developers, however, could be a boon for single-family home building, as craft workers that have been busy constructing apartments could begin to shift to home construction if multifamily work opportunities begin to disappear.
At the beginning of November, Dodge, in its 2018 Dodge Construction Outlook, predicted that total construction starts next year will increase by 3% to $765 billion. In the same report, Dodge also said the end result for 2017 would be an overall increase of 4% to $746 billion. Of all Dodge's projections, the single-family category could yield the most starts at an estimated increase of 9%. The National Association of Home Builders says builder confidence is at its highest in 17 years.
The poorest performer next year should be electric utilities and gas plants, with an expected -13% downturn in starts. For example, South African chemical and energy company Sasol recently canceled plans to construct a $15 billion gas-to-liquids (GTL) factory near Lake Charles, LA, citing low oil prices.
Yet, there are still big plants either under construction or in the planning stages. In Michigan, the Lansing Board of Water and Light announced that it would begin construction on a $500 million natural gas plant in 2018 in order to help the board achieve its goal of 30% clean energy production by 2020. The new facility will replace an old coal-fired plant and supplement wind and solar energy production.
