The recently released Gross Domestic Product (GDP) Second Estimate by the Bureau of Economic Analysis (BEA) showed a slight increase in GDP, which grew at an annualized rate of 1.3% in the first quarter, surpassing the initial estimate of 1.1% reported last month. These updated figures primarily reflect an upward revision to private inventory investment. The upward revision in GDP signifies steady economic conditions, suggesting that businesses and consumers confidence continued to weather higher prices and concern over recession in 2023. This optimism bodes well for the overall economy.

However, while there has been an overall increase in the first quarter GDP estimate, certain components experienced contrasting trends. The boost in consumer spending was partially offset by decreases in private inventory investment and residential fixed investment. The decrease in residential fixed investment reflects a slowdown in housing construction as businesses and individuals scaled back their spending on residential structures, such as new housing units, renovations, and improvements. Factors such as rising material costs and mortgage rates, labor shortages, and affordability concerns have been contributors to this decrease. The drop in residential fixed investment calls for renewed focus on addressing affordability issues, improving construction productivity, and fostering innovative housing solutions.

In conclusion, the upward revision of the first-quarter GDP growth to 1.3% reinforces a positive outlook for the US economy. This increase in economic activity serves as an encouraging indicator for the construction projects planned for this year and beyond. Despite the persistent economic challenges, such as elevated costs and a tight labor market, the economy exhibited resilience in the first quarter. Thanks to these optimistic signals, it is expected to maintain its strength in the upcoming months. To successfully navigate these ongoing challenges, it is crucial that we adopt a proactive mindset. By doing so, we can foster a resilient economy that benefits businesses, individuals, and the construction industry as a whole.

The post Positive Outlook for US Economy: GDP Growth and Opportunities Amid Challenges appeared first on Dodge Construction Network.

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After a strong March, April shows marginal slowdown overall

HAMILTON, NJ —May 18, 2023 — Total construction starts fell 4% in April to a seasonally adjusted annual rate of $1.04 trillion, according to Dodge Construction Network. Nonresidential starts led the drop as manufacturing fell 22% following strong performance in March. To balance the decline, nonbuilding starts rose 7%, and residential building starts gained 12%.

On a year-to-date basis through April, total construction starts were 7% below the first four months of 2022. Residential starts were down 27%, and nonresidential and nonbuilding starts grew 7% and 16%, respectively. For the 12 months ending April 2023, total construction starts were 11% higher than the 12 months ending April 2022. Nonresidential and nonbuilding starts both showed gains at 34% and 24%, respectively; however, residential starts hindered overall growth with a 13% decline on a 12-month rolling basis.

“The construction sector continues to sweep its economic worries under the rug, even with inflation, unstable banking, and the potential breach of the U.S. debt ceiling,” said Richard Branch, chief economist for Dodge Construction Network. “While the presence of, or lack thereof, large manufacturing projects each month has made the data more volatile, the underlying trends point to a very healthy sector. However, this is likely transitory. The Dodge Momentum Index, which tracks projects entering the earliest stages of planning, is falling, which should lead to weaker starts in the second half of the year – especially for the private sector.”

Nonbuilding
Nonbuilding construction starts improved 7% in April to a seasonally adjusted annual rate of $281 billion. The utility/gas plant category had the largest gain in the month, rising 76%, with a small increase in street and bridge starts at 5%. Miscellaneous nonbuilding starts fell 16%, and environmental public works lost 17%. Year-to-date through April, nonbuilding starts gained 16%. Utility/gas plants rose 37%, and miscellaneous nonbuilding starts were up 36%. Environmental public works rose 10%, and highway and bridge starts gained 9%.

For the 12 months ending April 2023, total nonbuilding starts were 24% higher than the 12 months ending April 2022, with significant gains across each sector. Utility/gas plant starts rose 43%, miscellaneous nonbuilding starts were 27% higher, highway and bridge starts were up 20%, and environmental public works rose 17% on a 12-month rolling sum basis.

The largest nonbuilding projects to break ground in April were the $750 million Magnolia Power/Kindle Energy generating station in Plaquemine, Louisiana, the $738 million Rock Creek wind farm in Laramie, Wyoming, and the $542 million Eagle LNG export facility in Jacksonville, Florida.

Nonresidential

Nonresidential building starts declined 22% in April to a seasonally adjusted annual rate of $383 billion. This sharp decline follows an equally large in March, when numerous large manufacturing plants took off. In April, manufacturing starts lost a staggering 68%. Institutional starts dropped 13%, largely due to a pullback in healthcare construction, while commercial starts improved 5% thanks to an increase in retail and office construction. Year-over-year, in January 2023 through April 2023, total nonresidential starts were 7% higher than in the first four months of 2022. Institutional starts gained 14%, manufacturing starts were 4% higher, and commercial starts were up 2%.

Between April 2022 and April 2023, total nonresidential building starts were 34% higher than April 2021 through April 2022. Manufacturing starts were 118% higher, institutional starts improved 22%, and commercial starts gained 18%.

The largest nonresidential building projects to break ground in April were the $1.2 billion Hanwha Qcells solar plant manufacturing plant in Cartersville, Georgia, the $650 million Group14 battery plant in Moses Lake, Washington, and the $600 million Mutual of Omaha headquarters in Omaha, Nebraska.

Residential

Residential building starts increased 12% in April to a seasonally adjusted annual rate of $373 billion. Single family and multifamily starts remained strong, increasing 14% and 10%, respectively. On a year-to-date basis through April 2023, total residential starts were down 27%. Single family starts were 34% lower, and multifamily starts were down 10%.

For the 12 months ending in April 2023, residential starts were 13% lower than that ending in April 2022. Single family starts were 25% lower, while multifamily starts were up 14% on a rolling 12-month basis.

The largest multifamily structures to break ground in April were the $549 million Mana’olana Place mixed-use building in Honolulu, Hawaii, a $500 million mixed-use building in Flushing, New York, and the $385 million 710 Broadway Apartments in Santa Monica, California.

Regionally, total construction starts in April fell in the Midwest, South Atlantic, and South Central regions, but rose in the Northeast and West.

Watch Chief Economist Richard Branch discuss April Construction Starts here.

April 2023 CONSTRUCTION STARTS

The post Total Construction Starts Slip in April Due to Sharp Decline in Manufacturing appeared first on Dodge Construction Network.

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While there are several risks facing the U.S. economy and the construction sector in 2023, the most pressing concern is the ongoing battle over raising the debt ceiling, which could have significant repercussions for government spending and overall economic stability.

In the second quarter edition of the Construction Market Forecasting Service (CMFS) released in May 2023, it was assumed that the U.S. economy would barely avoid recession in 2023 thanks to the strength in the labor market and the debt ceiling would be raised before the X date (the date at which the government could no longer pay its bills), which as of writing is projected to be in early June.

Under this scenario, construction starts would muddle through 2023, rising 2% from the previous year. Private markets (residential, office, hotel, warehouse, etc.) would feel pressure while public markets (infrastructure, education, healthcare) would offset the negativity. Manufacturing, and the inclusion of the CHIPs and Inflation Reduction Act (IRA) monies, have transitioned this sector into a quasi-public sector (for the short-term at least), and as such it will also lend support to the industry in 2023.

But what if the debt ceiling assumption didn’t pan out and the U.S. breached?

Moody’s Analytics recently published two debt ceiling breach scenarios:

Short Breach: The debt limit is breached in early June, but Congress resolves the crisis a week after the breach. The U.S. enters a brief recession.

Prolonged Breach: The debt limit is breached in early June and lawmakers don’t solve the issue until the end of July. This deals a blow to the U.S. economy and triggers a deeper recession.

The Dodge Construction Network Economics Group ran these two alternative scenarios through our econometric construction starts models to get a sense of how construction starts would react.

Under the short breach scenario, total construction starts would go from climbing 2% in 2023 to falling 3%, and barely expanding in 2024. In many ways, this scenario is fairly similar to the baseline, albeit with greater amplitude for the individual verticals. Residential and commercial (retail, warehouse, office, hotel) starts would fall into deeper holes in 2023 and remain negative in 2024. Since the breach is short, public markets will continue to be supported by funds from IIJA, CHIPs, and IRA although the second and third quarters of 2023 would see weakness.

The much more somber scenario is the prolonged breach. Under this scenario, construction starts would fall 14% in 2023 (compared to +2% in the baseline) and fall a further 9% in 2024. In many ways, this is akin to the impact of the financial crisis on starts in the 2007-2009 period.

Much like the financial crisis, all verticals – even those buoyed by IIJA, CHIPs, and IRA – would suffer in 2023 and 2024. From peak to trough, total construction starts would lose roughly 30%. This is more “mild” relative to the 40% peak-to-trough decline in 2007-2009 as it is assumed that IIJA, CHIPs, and IRA funds would begin to slowly flow back into the market in Q4 of 2023.

While the comparison to the Great Recession is convenient, this is where it ends.  Unlike the 2007-2009 period, there are no significant systemic issues facing the economy – there are no asset bubbles, banks are well capitalized etc. Inflation is a problem, but the Fed is slowly winning the battle. This will translate into a healthy recovery in construction starts by late 2024 in the prolonged breach scenario and early 2024 in the short breach scenario.

While these two scenarios seem unlikely to occur, it is safe to assume that brinksmanship in Washington will take raising the debt ceiling down to the wire. Considering that, it would seem prudent to hope for the best, but prepare for the worst.

The post Debt Ceiling Breach Would Have Significant Impact on Construction Starts Outlook appeared first on Dodge Construction Network.

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The recent Producer Price Index (PPI) report from the Bureau of Labor Statistics reveals that prices for final demand rose 0.2% in April. The PPI measures the average change over time in the prices manufacturers and producers receive for the goods they sell. This moderate increase still signals inflationary pressures in the economy, emphasizing the ongoing challenge of managing costs in the current economic climate.

This increase could impact the construction industry, which heavily relies on raw materials and supplies. The red line on the graph, which represents the year-over-year percent change in a composite index of construction materials, has seen an upturn, which could be concerning as it leads the bid price, represented by the blue line, by 12 months; if sustained, this could potentially lead to a re-acceleration in bid prices in 2024, just as building markets are expected to improve following the slowdown in 2023. As we navigate these uncertain times, construction firms must remain vigilant and adapt to evolving market conditions by closely monitoring their costs and adjusting their pricing strategies to stay competitive. Let’s continue to keep an eye on key indicators like the PPI to make informed decisions for our business and clients. Stay tuned for more updates and insights.

About Dodge Construction Network
Dodge Construction Network leverages an unmatched offering of data, analytics, and industry-spanning relationships to generate the most powerful source of information, knowledge, insights, and connections in the commercial construction industry.

The company powers four longstanding and trusted industry solutions—Dodge Data & Analytics, The Blue Book Network, Sweets, and IMS—to connect the dots across the entire commercial construction ecosystem.

Together, these solutions provide clear and actionable opportunities for both small teams and enterprise firms. Purpose-built to streamline the complicated, Dodge Construction Network ensures that construction professionals have the information they need to build successful businesses and thriving communities. With over a century of industry experience, Dodge Construction Network is the catalyst for modern commercial construction.

Media Contact:
Cailey Henderson | 104 West Partners | cailey.henderson@104west.com

The post Construction Industry Navigates Challenges as April 2023 PPI Shows Slight Increase appeared first on Dodge Construction Network.

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Higher employment in residential and nonresidential sectors leads to rebound

The Bureau of Labor Statistics reported that hiring in the US unexpectedly picked up last month, with employers adding 253,000 (seasonally adjusted) jobs, up from a revised 165,000 in March. The nation’s unemployment rate edged down to 3.4% in April, from 3.5% a month earlier and 3.6% in February, representing the lowest jobless rate since January.

The construction industry added 15,000 (seasonally adjusted) jobs last month, rebounding from a loss of 11,000 jobs in March. Employment in both residential and nonresidential sectors rose by 14,200 and 800, respectively. Meanwhile,  the construction unemployment rate declined from 5.6% in March to a still robust 4.1%, highlighting the persistent labor shortages in the industry.

Despite the increase in jobs, the outlook for construction employment remains uncertain. Tighter monetary policy and the recent banking turmoil have added to the downside risks for the industry. The latest (April) Federal Reserve’s Senior Loan Officer Opinion survey noted an increase in the number of banks that were tightening their lending standards in the first quarter of 2023. The survey also mentioned a weaker demand for credit and that respondents expect these trends will continue over the remainder of 2023.

Tighter lending standards do not bode well for the construction sector in the short term. With the planning queue on a generally downward slope since the beginning of the year , the potential effect on Construction Starts will add to the risks facing construction employment in the short term.

The post Employment in Construction Sector Rebounds in April appeared first on Dodge Construction Network.

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Weak office, hotel, and retail planning activity pull Index lower

HAMILTON, N.J. – May 5, 2023 — The Dodge Momentum Index (DMI), issued by Dodge Construction Network, fell 5.1% in April to 180.9 (2000=100) from the revised March reading of 190.6. In April, the commercial component of the DMI fell 8.0%, and the institutional component improved 0.3%.

“On par with our expectations, the Dodge Momentum Index continued to recede in April, due to declining economic conditions and ongoing banking uncertainty.” stated Sarah Martin, associate director of forecasting for Dodge Construction Network. “Weaker commercial planning is driving the DMI’s decline, as it is more exposed to real-time economic changes than the largely publicly funded institutional segment.”

Commercial planning in April was pushed down by sluggish office, hotel and retail activity. Institutional planning remained flat, as weak education planning offset growth in healthcare and amusement projects. Year over year, the DMI remains 11% higher than in April 2022. The commercial and institutional components were up 7% and 17% respectively.

A total of 16 projects with a value of $100 million or more entered planning in April. The largest commercial projects included a $268 million warehouse in El Dorado Hills, California, and a $170 million hotel in New York City, New York. Leading the way on the institutional side were the $450 million Desert Diamond Casino in Glendale, Arizona and the $350 million Global Energy Park research and development laboratory in Golden, Colorado.

The DMI is a monthly measure of the initial report for nonresidential building projects in planning, shown to lead construction spending for nonresidential buildings by a full year.

Watch Associate Director of Forecasting Sarah Martin discuss April’s DMI here.

About Dodge Construction Network
Dodge Construction Network leverages an unmatched offering of data, analytics, and industry-spanning relationships to generate the most powerful source of information, knowledge, insights, and connections in the commercial construction industry.

The company powers four longstanding and trusted industry solutions—Dodge Data & Analytics, The Blue Book Network, Sweets, and IMS—to connect the dots across the entire commercial construction ecosystem.

Together, these solutions provide clear and actionable opportunities for both small teams and enterprise firms. Purpose-built to streamline the complicated, Dodge Construction Network ensures that construction professionals have the information they need to build successful businesses and thriving communities. With over a century of industry experience, Dodge Construction Network is the catalyst for modern commercial construction. To learn more, visit construction.com

Media Contact:
Cailey Henderson | 104 West Partners | cailey.henderson@104west.com

The post Dodge Momentum Index Declines In April After Pullback In Commercial Planning appeared first on Dodge Construction Network.

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JOLTS for March falls to lowest level in almost two years

U.S. job openings as recorded by the Bureau of Labor Statistics fell to 9.6 million in March, the lowest level since April of 2021. This marks the third consecutive month of decline and points to ongoing success in the cooling of the labor market. The construction sector faced similar declines with the number of openings in the industry falling from 404,000 in February to 341,000 in March.

Additionally, though hires increased 33,000 in the construction industry, layoffs and discharges more than offset this gain with an increase of 112,000. This data has been volatile of late, reflecting the ebb and flow of project starts and completions. This is likely to continue through the year as Dodge Construction Network construction starts ease due to the slowing economy. Regardless, lack of skilled labor will remain a significant pinch point for the sector and will serve to hold back industry growth in the years to come.

The post JOLTS for March falls to lowest level in almost two years appeared first on Dodge Construction Network.

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