New Starts Dip in November

NEW YORK CITY—New construction starts fell 5% in November to a seasonally adjusted annual rate of $563.3 billion, Dodge Data & Analytics said late Friday afternoon. Although the decline represented a partial pullback after the 13% increase reported for total construction in October, November's Dodge Index of 119 still came in ahead of the lackluster numbers seen this past summer.

Year to date, construction starts on an unadjusted basis were up 8% compared to 2014, although the gains were due entirely to single-family and multifamily starts. "The pattern of construction starts on a month-to-month basis is rarely smooth, and on balance October and November do show improvement after the subdued activity in late summer," says Robert Murray, chief economist for Dodge Data.

Murray says the construction expansion, while "often hesitant," should be able to continue in the new year, thanks to several factors. For one thing, "market fundamentals for commercial real estate, namely occupancies and rents, continue to strengthen."

Public sector actions are also helping maintain the pace. State and local lawmakers are passing more construction bond measures, particularly for school construction, Murray notes. A new five-year federal transportation bill was enacted in early December, and it's estimated that federal financing support for highway and bridge construction will increase 5% in 2016. 

"Congress has reached agreement on fiscal 2016 appropriations, alleviating near-term uncertainty with regard to federal funding," Murray says. "And while the Federal Reserve has begun to move monetary policy towards a more neutral stance, the increases in short term interest rates during 2016 are expected to be very gradual."

Nonresidential construction starts were off 13% in November to an annualized $175.4 billion, following a 33% rebound in October. Among other factors, the office projects that got underway last month were on the smaller side, helping to account for a 43% drop in office starts during November.

Conversely, residential construction, although still down from October, posted smaller monthly declines, with the sector overall off 2% from the previous month and multifamily down 6%. YTD residential building was up 14% from the year prior.