ConstructConnect has announced that the volume of nonresidential construction starts in June was $39.8 billion, a month-to-month change of -24.7 percent. The one-quarter drop was not due to market conditions. Rather, the comparison of June versus May suffered from the latter including Foxconn Technology’s $10 billion industrial plant in Wisconsin. June relative to May exclusive of that single mega project was still down, but by only -7.2 percent. The historical May-to-June change, aided by favorable seasonality, has been +4.5 percent.
June 2018 versus the same month of last year was -6.3 percent. June 2018 versus the five-year average for June, from 2013 through 2017, was +3.2 percent.
Year-to-date starts in 2018, compared with first half (H1) 2017 starts, have been -5.5 percent.
The starts figures throughout this report are not seasonally adjusted (NSA). Nor are they altered for inflation. They are expressed in what are termed current as opposed to constant dollars.
Non-residential building plus engineering/civil work accounts for a larger share of total construction than residential activity. The former’s combined proportion of total put-in-place construction in the Census Bureau’s April report was 57 percent; the latter’s share was 43 percent.
ConstructConnect’s construction starts are leading indicators for the Census Bureau’s capital investment or put-in-place series. Also, the reporting period for starts (June 2018) is one month ahead of the reporting period for the investment series (May 2018.)
The June 2018 increase in construction employment, as recorded in the latest Employment Situation report from the Bureau of Labor Statistics (BLS), was +13,000 jobs. Among sub-sectors of construction, it was heavy and civil engineering work that saw the largest month-to-month pickup in hiring, +6,000 jobs. The average monthly climb in staffing by the construction sector through H1 of this year has been +25,000, a decent gain (+25 percent) over the comparable figure of +20,000 from last year.
Construction jobs are now +4.1 percent year over year, a rate of improvement that is more than two-and-a-half times greater than the +1.6 percent advance for all jobs in the nation. The BLS report also includes employment results for the following additional pockets of the economy with close ties to construction, architectural and engineering services, +3.1 percent; building material and garden supply stores, +3.7 percent; real estate, +2.1 percent; and oil and gas extraction, +3.9 percent.
Most of the -24.7 percent retreat in total non-residential starts month to month (m/m) in June originated in the industrial sub-category (-87.7 percent). There were no projects in the manufacturing starts in June that could compete with the $10 billion Foxconn insertion in May. Commercial (-40.4 percent) was also down, but institutional (+18 percent) and engineering (+4.5 percent) perked up.
The -6.3 percent step back in the June 2018 total non-residential starts, versus June 2017 (y/y), was due to declines in the commercial (-36.9 percent) and institutional (-6.3 percent) type-of-structure sub-categories that weren’t quite matched by industrial (+11.3 percent) and heavy engineering/civil (+26.5 percent) uplifts.
There was a similar pattern for year-to-date (ytd) total non-residential starts. The fact that January-to-June 2018 total non-residential starts were -5.5 percent relative to January-June 2017 (H1 2018/H1 2017) resulted from weakness in commercial (-23.7 percent) and institutional (-12.3 percent) that was not quite offset by strength in industrial (+35.8 percent) and heavy engineering (+13.4 percent).
Within the commercial type-of-structure category, the four major sub-headings by share of total in June were ‘hotel/motel’ (a 22% slice ytd), ‘private office’ (19%), ‘warehouse’ (15%) and ‘retail/shopping’ (14%). For all those stalwarts, their latest percentage-change numbers were gloomy. ‘Hotel/motel’ starts in June were -72.6% m/m; -38.3% y/y; and -17.0% ytd. ‘Private office’ work was -31.0% m/m; -73.9% y/y; and -34.2% ytd. ‘Warehouse’ was -63.5% m/m; -51.3% y/y; and -16.7% ytd. ‘Retail/shopping’ was -27.7% m/m; -46.8% y/y; and -16.7% ytd.
‘Miscellaneous commercial’ in June, however, did manage to deliver some good news. While being -42.6% ytd, it was +23.8% y/y and +92.7% m/m. This category includes ‘transportation terminal’ work, which was +60.9% ytd. The passenger side of airport construction appears here, with runways in ‘civil’. Nashville has been the latest city with large airport terminal work.
Institutional starts so far in 2018 have been dominated by the ‘school/college’ sub-category, which in June was -8.9% ytd and -3.9% y/y, but +30.4% m/m. Providing deeper granularity, the H1 2018/H1 2017 results were: -2.9% for ‘elementary/pre-school’; +4.1% for ‘junior/senior high school’; +3.5% for ‘special vocational schools’; and -28.6% for ‘college/university’ starts.
Medical facility work has a large supporting role in institutional starts. ‘Hospital/clinic’, ‘nursing/assisted living’ and ‘miscellaneous medical’ combined for a 28% share of institutional in June. The biggest of those three, ‘hospital/clinic’, was -4.1% m/m; -8.5% y/y; and -22.2% ytd.
In engineering starts, it’s the ‘road/highway’ (a 37% share ytd) and ‘miscellaneous civil’ (23%) sub-categories that have been leading the way. In June, the former was -4.2% m/m; +7.8% y/y; and +7.5% ytd, while the latter – which includes railways and subways as well as electric power plants and oil and gas pipelines – was +147.2% m/m; +154.5% y/y; and +112.7% ytd. Rapid tranist work in L.A. stands out in June’s Top 10 list.
The 12-month moving average trend graphs on page 5 are showing declining slopes, of late, for the ‘building’ type-of-structure categories, but ascending curves for the ‘civil’ categories.
The value of construction starts each month is summarized from ConstructConnect’s database of all active construction projects in the U.S. Missing project values are estimated with the help of RSMeans’ building cost models.
ConstructConnect’s non-residential construction starts series, because it is comprised of total-value estimates for individual projects, some of which are ultra-large, has a history of being more volatile than many other leading indicators for the economy.