September Construction Starts Settle Back 5 Percent

New construction starts in September fell 5 percent from the previous month to a seasonally adjusted annual rate of $709.6 billion, according to Dodge Data & Analytics. The September downturn followed 9-percent declines in both July and August, as the pace of construction starts has now pulled back for the third month in a row after reaching the current year’s high in June, according to the report.

By major sector, nonresidential building weakened further in September, sliding 6 percent. Residential building was the one major sector posting a gain in September, rising 2 percent.

Through the first nine months of 2018, total construction starts on an unadjusted basis were $599.9 billion, down 1 percent from the same period a year ago.

September’s data produced a reading of 150 for the Dodge Index (2000=100), after the 157 reported for August.

“The pace of construction starts has clearly slowed over the past three months, following what was unsustainably high levels during May and June,” says Robert A. Murray, chief economist for Dodge Data & Analytics.

“Since construction starts on a monthly basis are often subject to wide swings, it’s useful to look at the recent pattern of activity on a quarterly basis,” Murray continues.  “After sliding 7 percent in the fourth quarter of 2017, total construction starts strengthened 3 percent in this year’s first quarter and then advanced another 4 percent in the second quarter. The loss of momentum in July, August and now September produced a 7-percent decline for the third quarter, in effect returning the pace of construction starts to the level reported at the end of last year.  It’s true that the rate of growth for construction starts has decelerated more in 2018, but it’s still too early to say that the construction industry has rounded the peak and is now in decline.”

Nonresidential building in September was $236.4 billion (annual rate), down 6 percent.  The commercial building categories as a group fell 13 percent, retreating for the third month in a row after the robust volume back in June that included the start of such projects as the $1.8 billion Spiral office tower in the Hudson Yards district of New York and a $665 million office tower on North Wacker Drive in Chicago. Office construction in September dropped 38 percent from August, including the groundbreaking for a $520 million California state government office building in Sacramento, Calif.

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