NEW YORK CITY—The year got off to a sluggish start from the standpoint of construction spending, as Dodge Data & Analytics' newly issued Dodge Momentum Index of nonresidential projects in planning dropped 5.1% in January to 143.7 from a revised reading of 151.5 in December. Yet Dodge Data sees the lower reading as a return to a more sustainable level following an especially strong fourth quarter.
The commercial component of the Momentum Index was 7.8% lower in January, while the institutional component was down 0.9%. However, on a year-over-basis January's index was up 7.7%, with both the commercial and institutional components showing growth over January 2017. This suggests that nonresidential building construction should continue to post moderate gains in 2018, according to Dodge Data.
For '17 on the whole, the Dodge Index of new starts averaged 158, with a baseline of 100 established by construction levels in 2000. “The construction industry over the past two years has made the transition to a more mature stage of expansion, characterized by slower rates of growth for total construction compared to the 11% to 13% yearly gains during the 2012-2015 period,” says Robert A. Murray, Dodge Data's chief economist.
In the current year, Murray says, construction expansion is anticipated to continue “at a modest pace. The tax reform package is expected to provide a near-term lift to overall economic growth, and the likely beneficiaries would be commercial building and multifamily housing.”
On the institutional building side, Murray says funding will come from state and local bond measures that have been passed in recent years. Passage of a new infrastructure program at the federal level could be a boon for public works project, although the impact at the construction site is more likely to be felt next year than this year, “as the program would feature incentives to boost funding from state, local and private sources.”
Along similar lines, the Associated General Contractors of America said Tuesday that construction employment, which rose in 269 out of 358 metro areas last year, would get a further lift from passage of an infrastructure package at the national level. “Construction employment continues to expand amid robust private-sector demand in many parts of the country,” says Ken Simonson, chief economist with AGC. “But with public-sector funding lagging, there is little doubt that more firms would be able to expand their headcount this year if Congress would enact a substantial boost in infrastructure projects, as many members of both parties advocate.”
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
