Economic Watch: New Construction Drops in December, Up for 2014

New construction starts in December retreated 16% from the month before totaling $568.2 billion, according to construction industry data provider Dodge Data and Analytics, but posted another annual gain.

The decline follows the 13% increase reported for total construction starts in November from October, when activity reached its highest level in 2014 with the lift coming from several exceptionally large projects. Both nonresidential building and non-building construction in December witnessed substantial percentage declines relative to their robust November amounts. At the same time, residential building managed a modest gain in December with the help of further growth by multifamily housing.

For 2014 as a whole, total construction starts climbed 7% to $575.3 billion. This continues the pattern of moderate expansion for total construction starts reported during the previous two years with 2012, up 10% and 2013, up 9%.

The December statistics produced a reading of 120 for the Dodge Index, compared to 143 in November. For all of 2014, the Dodge Index came in at 122, so while December was down considerably from the previous month it still held close to the average for the full year.

"The construction start statistics can often be volatile on a month-to-month basis, given the presence of large projects in any one given month," said Robert A. Murray, chief economist for Dodge Data & Analytics. "A better sense of the progression of construction starts over the course of 2014 comes from looking at the data on a quarterly basis. Activity weakened during the first quarter of 2014, falling 10% from the end of 2013, but then showed steady improvement as 2014 proceeded, with gains in the second quarter, up 9%; the third quarter, up 5%; and the fourth quarter, up 2%."

Looking ahead to 2015, Murray said nonresidential building should benefit from more private investment directed at commercial building and more financing for school construction given the passage of recent bond measures. However, the rate of increase for nonresidential building will be dampened by a slower pace for energy-related manufacturing projects.

He is forecasting residential building should see more multifamily housing while renewed growth for single family housing will need the banking industry to provide potential homebuyers with greater access to home mortgages.

“Non-building construction will be helped by the fact that federal spending levels for fiscal 2015 were set in December, but Congress needs to address the stopgap federal transportation legislation that expires at the end of May, said Murray"