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AGC's Data DIGest: March 20-23, 2017

Dodge, ConstructConnect, ABI, Census find divergent starts, design and permit trends

The value of construction starts rose 2% from January to February at a seasonally adjusted annual rate, Dodge Data & Analytics reported on Tuesday. "This was the second straight monthly increase, following a 15% hike in January [revised up from an initial estimate of +12%], as construction starts regained the upward track following four consecutive monthly declines to close out 2016. Much of February's advance came from a strong performance by the public works sector, led by the start of a $1.4 billion natural gas pipeline in Ohio, West Virginia, and Pennsylvania, plus an improved level of highway and bridge construction. The electric utility/gas plant category also strengthened with the start of two large power plants and a major transmission line project. At the same time, nonresidential building made a partial retreat [-9%] after its strong January performance, yet still remained slightly above its average monthly pace during 2016. Residential building in February also settled back [-3%], due to a slide for multifamily housing....Additional perspective is obtained by looking at...the 12 months ending February 2017 versus the 12 months ending February 2016, which lessens the volatility present in comparisons of just two months. On this basis, total construction starts were up 2%. By major sector, nonbuilding construction dropped 12%, with public works down 4% and electric utilities/gas plants down 30%. Residential building was up 4%, with multifamily housing down 2% while single family housing grew 7%. Nonresidential building increased 10%, with institutional building up 16%, commercial building up 12%, and manufacturing building down 23%.

The value of nonresidential construction starts decreased 7.5% year-over-year (y/y), not seasonally adjusted, from February 2016 to February 2017, data provider ConstructConnect reported on Wednesday. Nonresidential building starts (66% of the total) slumped 12% y/y. Commercial building starts fell 7.0% y/y; institutional building starts slid 12% y/y; and the small industrial building starts segment tumbled 39% y/y. Heavy engineering (civil) starts (34% of the total) climbed 2.9% y/y.

The Architecture Billings Index (ABI) "returned to growth mode [50.7] in February, after a weak showing [49.5] in January," the American Institute of Architects (AIA) reported on Wednesday. The ABI measures the percentage of surveyed architecture firms that reported higher billings than a month earlier less the percentage reporting lower billings; any score over 50 indicates billings growth. AIA says the index "reflects the approximate 9-to-12 month lead time between architecture billings and construction spending." The scores for all four practice specialties were down slightly but still close to 50 (based on three-month moving averages): institutional, 51.8, down from 53.0 in January; residential (mainly multifamily), 49.3, down from 50.3; mixed practice, 49.2, down from 50.0; and commercial/industrial, 48.9, down from 51.0.

Housing starts in February rose 3.0% at a seasonally adjusted annual rate from the January rate and 6.2% y/y, the Census Bureau reported on March 16. Single-family starts climbed 6.5% for the month and 3.2% y/y. Multifamily (buildings with 5 or more units) starts declined 7.7% for the month but increased 11% y/y. Building permits, a fairly reliable predictor over time of near-term starts, decreased 6.2% for the month but rose 4.4% y/y. Single-family permits climbed 3.1% and 14%, respectively. Multifamily permits decreased 27% and 16%, respectively.

Census's latest quarterly Survey of Market Absorption appears to suggest demand for rental apartment construction remains solidbut condo construction still lags. Completions of nonsubsidized, unfurnished, rental apartments in buildings with five or more units totaled 73,800 in the third quarter (Q3) of 2016, up 11,700 (19%) from 2016Q2 but down 9,800 (-12%) from 2015Q3. The absorption rate (apartments rented within three months of completion) for rental apartments completed in 2016Q3 stood at 61, up 4 percentage points from 2016Q2 but essentially unchanged compared to the 60% rate in 2015Q3. Condominium completions jumped to 6,100 in 2016Q3, 2,800 units (85%) more than in 2016Q2 and 1,800 (42%) higher than in 2015Q3, but only 8% of the multifamily total and less than a third of the condo completion rate in 2006-2008. Meanwhile, the "possibility of a U.S. tax-code overhaul is casting a shadow over the $10 billion affordable-housing industry, which [relies on the low-income housing tax credit to help fund] about one-quarter of all new apartment construction in the U.S.," the Wall Street Journal reported on Wednesday. A possible cut in the top corporate tax rate from 35% to 15-20% would reduce the value of the credit and of depreciation and interest deductions. "The reduction in the credit's value is likely to lead to [$1-1.5] billion less equity investment in affordable housing this year, according to Novogradac & Co. LLP, an accounting firm." 

Consultancy IHS Markit and the Procurement Executives Group (PEG) reported on Wednesday that "Construction costs rose in March on strength in both materials and labor markets....registered the fifth consecutive month of rising prices, though the 53.9 reading in March was down from 55.2 in February. The materials/equipment price index came in at 55.4, below the 58.0 in February. Eight of the 12 categories tracked in the materials sub-index showed rising prices. Ready-mix concrete, turbines and the ocean freight indexes registered flat pricing. No category had falling prices. Transformers and electrical equipment had the largest index figure increase compared to February; index figures rose approximately 10 points for each, illustrating the pass-through from recent raw material price increases....The subcontractor labor index rose in March to 50.3 after dipping below the neutral point in February." 

The Data DIGest is a weekly summary of economic news; items most relevant to construction are in italics. All rights reserved. Sign up at www.agc.org/datadigest