At a seasonally adjusted annual rate of $783.6 billion, new construction starts in May advanced 15% from April, according to Dodge Data & Analytics. The increase follows a 12% decline in April, and shows total construction activity reaching the highest level reported over the past eight months. The lift in May came from substantial gains for nonbuilding construction, up 39%; and nonresidential building, up 18%. The Dodge release said both sectors benefitted from the start of several very large projects.
“During the first five months of 2018, total construction starts have shown an up-and-down pattern, with May coming in strong after a subdued April,” said Robert Murray, chief economist for Dodge Data & Analytics. “On balance, the pace of total construction starts is staying close to the levels achieved over the past year, when activity grew 5%.
“The construction industry is facing increased headwinds, such as higher material prices and the recent pickup in interest rates, but to this point they have not yet produced a discernible negative impact on the overall level of construction starts. On the plus side, the public works and institutional building sectors continue to benefit from the state and local bond measures passed in recent years.”
“The public works sector should also benefit from the increased federal funding for transportation projects included in the March 2018 federal appropriations bill.”
Murray also said while market fundamentals such as rents and vacancies have weakened for multi-family housing, they still remain relatively healthy for warehouses and offices. Bank lending standards for nonresidential building projects have eased slightly, and the recent rollback of Dodd-Frank regulatory constraints on mid-size regional banks may lead to more funding for construction projects in the near term, he said.