Construction Starts Increase But Rising Material Prices Still Hurt

In March, total construction starts rose 2% to a seasonally adjusted annual rate of $825.3 billion, according to Dodge Data & Analytics.

Nonresidential building starts fueled the March gains. Residential starts saw a tiny amount of growth, while nonbuilding starts fell. Starts rose in the West, South Central and Northeast regions while failing in the Midwest and South Atlantic regions. After hitting 172 (2000=100) in February, The Dodge Index rose 2% in March to 175.

After significant gains in February, nonbuilding construction starts fell 7% in March to a seasonally adjusted annual rate of $186.7 billion. The decline was led by the miscellaneous nonbuilding sector (-43%) and environmental public works (-11%). However, the utility gas plant and highway and bridge categories saw 39% and 2% gains, respectively.

Total nonbuilding starts were 10% lower for the 12 months ending March 2021 than the 12 months ending March 2020. In March, the $1.2 billion (1.1 GW) Sanborn Solar Facility in Mojave Calif., the $525 million Azure Sky (350 MW) wind farm in Throckmorton, Texas and the $425 million Double E Pipeline between Eddy County New Mexico and Waha, Texas were the largest projects to break ground in March.

Gains in education, recreation, and public buildings (which rose 15%) pushed nonresidential building starts up 13% in March to a seasonally adjusted annual rate of $235.3 billion. Also, commercial building starts jumped 11%, while manufacturing starts lost 52% in March.

Nonresidential building starts dropped 28% for the 12 months ending March 2021 compared to the 12 months ending March 2020. A $306 million Amazon, Inc. warehouse in Maspeth, NY, the $300 million Ball Corp. Aluminum Can factory in Pittston, Penn., and the $288 million TCCD Northwest Campus Redevelopment in Arlington, Texas were the largest nonresidential building starts.

On the residential side, starts nudged up less than one percent in March to a seasonally adjusted annual rate of $403.3 billion. While multifamily starts jumped 33%, single-family starts slipped 9%.

Total residential starts for the 12 months ending March 2021 were 6% higher than the 12 months ending March 2020. The largest multifamily projects to break ground in March were the $329 million 1629 Market Street mixed-use project in San Francisco, Calif., the $287 million Schuylkill Yards West Tower in Philadelphia Penn., and the $242 million National Urban League mixed-use building in New York NY.

Richard Branch, chief economist for Dodge Data & Analytics, thinks construction will continue to improve in 2021.

“However, just as the pandemic is beginning to loosen its grip on the economy, logistical problems and the rapid escalation in material prices have stepped in as the primary risk to the construction sector,” Branch said in a prepared statement. “These issues may restrain opportunity in the coming months, causing the sector’s recovery to lag that of the overall economy.”

Rising costs have been a problem since last summer at least. The US Bureau of Labor Statistics’ Producer Price Index (PPI) for construction materials has risen year-over-year every month since August, and Fitch analysts expect the trend to continue as demand remains strong and supply chain issues linger on the materials side.