Dodge starts slip in January; ABI signals widespread gains; multifamily signs are positive

                The value of new construction starts in January slipped 2% at a seasonally adjusted annual rate, following a 13% jump in December, construction data provider Dodge Data & Analytics reported on Thursday. "The nonbuilding construction sector, comprised of public works and electric utilities/gas plants, pulled back 18% after surging 45% in December, as that month was boosted by the start of the $2.3 billion I-66 Corridor Improvements Project in northern Virginia and a $992 million transmission line project in California. At the same time, nonresidential building edged up 1% in January, supported by groundbreaking for the $1.3 billion domed stadium in Las Vegas....In addition, residential building climbed 7% in January, helped by a [39%] rebound for multifamily housing after three straight months of declines....The 7% decline for total construction starts on an unadjusted basis for January 2018 relative to January 2017 was the result of a mixed performance by major sector. Nonbuilding construction increased 4%, with public works up 6% while electric utilities/gas plants dropped 6%. Nonresidential building fell 20% from a very strong January 2017....the institutional and commercial building segments of nonresidential building were down 23% and 21% respectively, while manufacturing plant starts advanced 18%. Residential building rose 1% from the same month a year ago, with single family housing up 3% while multifamily housing slipped 2%."

 The Architecture Billings Index (ABI) rose to a seasonally adjusted score of 54.7 in January from a revised reading of 52.8 in December, the American Institute of Architects (AIA) reported on Wednesday. The index measures the percentage of surveyed architecture firms that reported higher billings than a month earlier, less the percentage reporting lower billings; any score above 50 indicates an increase in billings. Scores (based on three-month moving averages) for the four practice specialties were all above 50: residential (mainly multifamily), 56.0 (up from 55.8 in December and the highest reading since 2014); commercial/industrial, 53.3 (down from 53.8 in December); institutional, 52.5 (down from 52.8); and mixed practice, 50.1 (down from 50.8). AIA noted, "Every January the AIA research department updates the seasonal factors used to calculate the ABI, resulting in a revision of recent ABI values." A study AIA conducted in 2014 concludes that the index "provides an approximately 9-to-12 month glimpse into the future of nonresidential construction spending activity." A new paper posted on Sunday by three researchers at the University of Texas at Arlington, using a variety of statistical tests, finds that the "ABI is helpful to forecast the nonresidential construction spending....ABI leads nonresidential construction spending in higher lag lengths (12 months and above)."

Several recent reports suggest multifamily construction spending, which declined 4.6% at a seasonally adjusted annual rate from April to September 2017 before recovering in the final quarter of the year, may be poised to break the record high set in April. In addition to the positive reports from Dodge and AIA, the National Association of Home Builders (NAHB) reported on Thursday that its "Multifamily Production Index (MPI) gained seven points to 53 in the fourth quarter of 2017....The MPI measures builder and developer sentiment about current conditions in the apartment and condominium market on a scale of 0 to 100. The index and all of its components are scaled so that a number above 50 indicates that more respondents report conditions are improving than report conditions are getting worse. The MPI is a composite measure of three key elements of the multifamily housing market: construction of low-rent units, market-rate rental units and 'for-sale' units, or condominiums. All three components increased in the fourth quarter: low-rent units rose two points to 56, market-rate rental units climbed 11 points to 54 and for-sale units increased nine points to 49." The Census Bureau reported on February 16 that multifamily starts (in buildings with five or more units) increased by 7.4% from January 2017 to January 2018, to 431,000 at a seasonally adjusted annual rate. Multifamily building permits, a fairly reliable indicator of near-term starts, increased by 3.0% to 479,000, the highest rate since September 2016. Rising mortgage rates and tax law changes that will reduce the number of taxpayers who benefit from the property tax and mortgage interest deductions may depress homebuying and add to demand for rental (generally multifamily) property. According to an analysis of Census data that NAHB posted today, "The market share of rental multifamily construction starts ticked back up to an elevated level of 95% in the fourth quarter of 2017.... There were only 20,000 multifamily condo units that started construction over the last year, 29% lower than the 28,000 recorded in 2016." 

"Construction costs rose again in February," consultancy IHS Markit and the Procurement Executives Group (PEG) reported on Wednesday. "The current headline [index, on a scale from 0 to 100 in which a reading higher than 50 represents upward pricing strength; below 50, downward pressure] registered 58.9, up 2.6 points compared to January. Both materials/equipment and labor sub-indexes came in above 50. The materials/equipment price index posted a 57.4 figure in February, falling from the stronger January figure of 58.9, indicating prices rising at a slightly slower pace in February. Pumps and compressors joined turbines and heat exchangers in the group experiencing lower prices; prices rose in the other nine categories. The previous month's large gains in the fabricated structural steel, alloy steel pipe, and ocean freight indexes were met with lower figures in February, though they remained above 50. The transformers index posted the largest gain, offsetting a decline in January. Current subcontractor labor prices experienced broad gains in February, registering 62.2, up from 50.3 in January. Labor costs were up in all regions in the United States."

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