At a seasonally adjusted annual rate of $708.1 billion, new construction starts in February slipped 3 percent from the previous month, according to Dodge Data & Analytics. The reduced activity in February followed a 2-percent decline in January, as the early months of 2018 are showing some loss of momentum after the 12-percent increase reported back in December.

The nonbuilding construction sector, comprised of public works and electric utilities/gas plants, fell 23 percent in February, resulting in the decline for total construction starts for the second month in a row. In contrast, nonresidential building grew 5 percent in February, continuing the strengthening trend which resumed in December, and residential building improved a slight 1 percent.

During the first two months of 2018, total construction starts on an unadjusted basis were $102.4 billion, down 7 percent from the same period a year ago which had been lifted by the start of several unusually large projects. Total construction starts for the 12 months ending February 2018 were up 2 percent from the 12 months ending February 2017.

The February statistics produced a reading of 150 for the Dodge Index (2000=100), compared to 154 for January.

“The 152 average for the Dodge Index during the first two months of 2018 is the same as the 152 average reported for the fourth quarter of 2017, as the pace of construction starts viewed over several months seems to have leveled off,” says Robert A. Murray, chief economist for Dodge Data & Analytics. “What’s important to keep in mind is that the moderately subdued amount for total construction starts during the first two months of 2018 reflects diminished activity by public works and electric utilities, which given their inherent volatility are likely to bounce back over the next month or two. Compared to last year’s fourth quarter, the first two months of 2018 have seen further increases for nonresidential building, helped by its institutional building segment, and residential building, helped by multifamily housing. This suggests that the construction expansion, while slowing, is still in progress.

“It’s true that the construction industry is now seeing more headwinds,” Murray continued. “Material prices have risen over the past year, and the tariffs on steel and aluminum announced by the Trump Administration will lead to further price hikes. The Federal Reserve is tightening monetary policy, and concerns about inflation by the financial markets have contributed to rising long-term interest rates. The prospects of an infrastructure program getting passed by Congress this year remain uncertain, against the backdrop of a mounting federal budget deficit. At the same time, the economy is expected to get a near term lift from tax reform, which would benefit commercial and manufacturing building, while funding from recent bond measures will support such institutional project types as school construction. On balance, the rate of growth for total construction is decelerating, but activity for 2018 is expected to stay at a relatively healthy amount.”

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