Total Construction Starts Slip

Total construction starts fell 4% in April to a seasonally adjusted annual rate of $1.04 trillion, according to Dodge Construction Network. Nonresidential starts led the drop as manufacturing fell 22% following strong performance in March. To balance the decline, nonbuilding starts rose 7%, and residential building stats gained 12%.

On a year-to-date basis through April, total construction starts were 7% below the first four months of 2022. Residential starts were down 27%, and nonresidential and nonbuilding starts grew 7% and 16%, respectively.

For the 12 months ending April 2023, total construction starts were 11% higher than the 12 months ending April 2022. Nonresidential and nonbuilding starts both showed gains at 34% and 24%, respectively; however, residential starts hindered overall growth with a 13% decline on a 12-month rolling basis.

Highway and bridge starts were up 5% for the month and 20% for the 12 months ending April 2023.

“The construction sector continues to sweep its economic worries under the rug, even with inflation, unstable banking and the potential breach of the U.S. debt ceiling,” said Richard Branch, chief economist for Dodge Construction Network. “While the presence of, or lack thereof, large manufacturing projects each month has made the data more volatile, the underlying trends point to a very healthy sector. However, this is likely transitory. The Dodge Momentum Index, which tracks projects entering the earliest stages of planning, is falling, which should lead to weaker starts in the second half of the year – especially for the private sector.”

Nonbuilding construction starts improved 7% in April to a seasonally adjusted annual rate of $281 billion. The utility/gas plant category had the largest gain in the month, rising 76%, with a small increase in highway and bridge starts at 5%. Miscellaneous nonbuilding starts fell 16%, and environmental public works lost 17%. Year-to-date through April, nonbuilding starts gained 16%. Utility/gas plants rose 37%, and miscellaneous nonbuilding starts were up 36%. Environmental public works rose 10%, and highway and bridge starts gained 9%.

For the 12 months ending April 2023, total nonbuilding starts were 24% higher than the 12 months ending April 2022, with significant gains across each sector. Utility/gas plant starts rose 43%, miscellaneous nonbuilding starts were 27% higher, highway and bridge starts were up 20%, and environmental public works rose 17% on a 12-month rolling sum basis.

The largest nonbuilding projects to break ground in April were the $750 million Magnolia Power/Kindle Energy generating station in Plaquemine, La., the $738 million Rock Creek wind farm in Laramie, Wyo., and the $542 million Eagle LNG export facility in Jacksonville, Fla.

Nonresidential building starts declined 22% in April to a seasonally adjusted annual rate of $383 billion. This sharp decline follows an equally large in March, when numerous large manufacturing plants took off.

In April, manufacturing starts lost a staggering 68%. Institutional starts dropped 13%, largely due to a pullback in healthcare construction, while commercial starts improved 5% thanks to an increase in retail and office construction. Year-over-year, in January 2023 through April 2023, total nonresidential starts were 7% higher than in the first four months of 2022. Institutional starts gained 14%, manufacturing starts were 4% higher, and commercial starts were up 2%.

Between April 2022 and April 2023, total nonresidential building starts were 34% higher than April 2021 through April 2022. Manufacturing starts were 118% higher, institutional starts improved 22%, and commercial starts gained 18%.

The largest nonresidential building projects to break ground in April were the $1.2 billion Hanwha Qcells solar plant manufacturing plant in Cartersville, Ga., the $650 million Group14 battery plant in Moses Lake, Wash., and the $600 million Mutual of Omaha headquarters in Omaha, Neb.

Residential building starts increased 12% in April to a seasonally adjusted annual rate of $373 billion. Single-family and multifamily starts remained strong, increasing 14% and 10%, respectively. On a year-to-date basis through April 2023, total residential starts were down 27%. Single-family starts were 34% lower, and multifamily starts were down 10%.

For the 12 months ending in April 2023, residential starts were 13% lower than that ending in April 2022. Single-family starts were 25% lower, while multifamily starts were up 14% on a rolling 12-month basis.

The largest multifamily structures to break ground in April were the $549 million Mana’olana Place mixed-use building in Honolulu, a $500 million mixed-use building in Flushing, N.Y., and the $385 million 710 Broadway Apartments in Santa Monica, Calif.

Regionally, total construction starts in April fell in the Midwest, South Atlantic, and South Central regions, but rose in the Northeast and West.

Single-Family Starts Show Gradual Improvement 
A lack of existing inventory and stabilizing mortgage rates helped push single-family production up to the highest rate thus far in 2023 even as builders continue to deal with high construction costs, persistent labor shortages and tightening credit conditions for construction loans.

Overall housing starts in April increased 2.2% to a seasonally adjusted annual rate of 1.40 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

It takes 400 tons of aggregates to construct the average modern home, according to the National Stone, Sand & Gravel Association.

The April reading of 1.40 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts increased 1.6% to an 846,000 seasonally adjusted annual rate. However, this remains 28.1% lower than a year ago. The multifamily sector, which includes apartment buildings and condos, increased 3.2% to an annualized 555,000 pace.

“Single-family starts are showing gradual improvement from the beginning of the year, and this is reflected in our builder sentiment surveys, which are up for five consecutive months,” said Alicia Huey, chairman of the National Association of Home Builders (NAHB) and a custom home builder and developer from Birmingham, Ala. “Due to a lack of inventory for resales, we expect to see further improvement for single-family production in the months ahead even as builders continue to grapple with supply-chain and labor shortages.”

“As the Federal Reserve nears the end of its tightening of financial conditions, we expect mortgage rates to moderate in the months ahead, and this will lead to a gradual improvement in single-family production,” said NAHB Chief Economist Robert Dietz. “Multifamily permits are down 23% year-over-year, and this indicates a slowdown for apartment construction is underway due to a tighter lending environment.”

On a regional and year-to-date basis, combined single-family and multifamily starts were 8.9% lower in the Northeast, 29.5% lower in the Midwest, 15.9% lower in the South and 29.7% lower in the West.

Overall permits decreased 1.5% to a 1.42 million unit annualized rate in April. Single-family permits increased 3.1% to an 855,000 unit rate, but are down 21.2% compared to a year ago. Multifamily permits decreased 7.7% to an annualized 561,000 pace.

Looking at regional permit data on a year-to-date basis, permits were 27.2% lower in the Northeast, 28.2% lower in the Midwest, 18.7% lower in the South and 28.6% lower in the West.

The number of single-family homes under construction in April fell to 698,000, down 16% from a peak total of 831,000 in May 2022.

There are now 977,000 apartments under construction, which is the highest level since September 1973.

Dodge Momentum Index Declines 
The Dodge Momentum Index (DMI), issued by Dodge Construction Network, fell 5.1% in April to 180.9 (2000=100) from the revised March reading of 190.6. In April, the commercial component of the DMI fell 8.0%, and the institutional component improved 0.3%.

“On par with our expectations, the Dodge Momentum Index continued to recede in April, due to declining economic conditions and ongoing banking uncertainty,” stated Sarah Martin, associate director of forecasting for Dodge Construction Network. “Weaker commercial planning is driving the DMI’s decline, as it is more exposed to real-time economic changes than the largely publicly funded institutional segment.”

Commercial planning in April was pushed down by sluggish office, hotel and retail activity. Institutional planning remained flat, as weak education planning offset growth in healthcare and amusement projects. Year over year, the DMI remains 11% higher than in April 2022. The commercial and institutional components were up 7% and 17%, respectively.

A total of 16 projects with a value of $100 million or more entered planning in April. The largest commercial projects included a $268 million warehouse in El Dorado Hills, Calif., and a $170 million hotel in New York City. Leading the way on the institutional side were the $450 million Desert Diamond Casino in Glendale, Ariz., and the $350 million Global Energy Park research and development laboratory in Golden, Colo.

The DMI is a monthly measure of the initial report for nonresidential building projects in planning, shown to lead construction spending for nonresidential buildings by a full year.

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