Construction begins to fall 8% as Fed aligns on rates

Dive brief:

• Total construction starts fell 8% in February at a seasonally adjusted annual rate of $1.07 trillion, according to data collected by the Dodge Construction Network. He was the greatest monthly starts decrease from Novemberwhen a 15% crater starts.
• However, from one year to the next, the launch of the project remained blank. For the 12 months ending February 2024, total construction starts rose 2% from the same period ending February 2023, Dodge said. Although positive, the monthly figures looked bleak.
• “Construction activity was hit hard by higher rates and tighter credit standards,” said Richard Branch, chief economist at Dodge. “Start-ups have struggled over the past few months as the lagged effect of higher rates hit projects further along in the planning process.”

Diving knowledge:

Early February could portend a prolonged period of slowness for the rest of the year, Branch said, after Stagnant January readings which only remained positive due to an increase in manufacturing.

Branch predicted interest rate struggles would continue for some time and said some sectors would not move the needle in early to late 2024.

“While optimism should prevail in the second half of the year as the Federal Reserve begins to cut rates, some sectors, such as retail, will see little progress for the remainder of the year,” Branch said in the statement The Federal Reserve keep interest rates unchanged for a fifth consecutive meeting on Wednesday, although he also said he was still committed to cutting rates three times in 2024.

On a trailing 12-month basis, non-residential building starts were down 2%, while residential starts were 4% lower and non-building starts were up 19%.

In addition to the tough interest rate environment, Branch pointed to a lack of available labor as an obstacle for the industry, particularly in building large factories amid the historic rise of onshoring developing throughout the country.

“The significant shortage of skilled labor led to further delays, particularly in the manufacturing sector,” Branch said.

Non-buildable leaves

Nonbuilding construction starts fell 3% in February to a seasonally adjusted annual rate of $275 billion. Highway and bridge starts lost 17% for the month, while environmental public works fell 8%, the statement said.

However, some groups fared better. Utilities and gas starts were up 13% and miscellaneous non-building starts were up 48%.

In the year, the outlook is better. In the 12 months ending February 2024, total non-building starts were up 19% from a year earlier. Motorway and bridge starts and environmental public works starts increased by 12%. Utilities and gas starts increased 37%, while miscellaneous non-building starts increased 21%.

The largest non-building projects that began in February were:

• The $1.1 billion Bull Run Filtration Facility in Gresham, Oregon.
• The $1 billion, 270-mile pipeline in North Slope County, Alaska.
• The $500 million Scatter Wash battery energy storage system in Phoenix.

Manufacture, non-residential sink

Nonresidential building starts fell 16 percent in February to a seasonally adjusted annual rate of $407 billion, Dodge said. Institutional starts fell 19% for the month, which Dodge attributed to a large decline in transportation and education buildings. Commercial starts, which include the beleaguered office sector, lost 3% due to a significant pullback in warehouse starts, and even manufacturing warehouse starts were down 28%.

In the 12 months ending February 2024, non-residential building starts were 2% lower than the previous period. Manufacturing starts fell 13% after hitting record levels in 2023 and commercial starts fell 8%, while institutional starts were 9% higher in the 12 months ending in February 2024.

The largest non-residential building projects that started in February were:

• The $1.8 billion Redwood Materials battery recycling facility in Ridgeville, South Carolina.
• LG’s $1.6 billion chemical battery plant in Clarksville, Tennessee.
• The $1.2 billion Hollywood Burbank Airport replacement project in Los Angeles.

Residencial tries to hold on

Residential building sank 2 percent in February, falling to a seasonally adjusted annual rate of $392 billion, per Dodge. Single-family starts improved by 5%, while multi-family starts lost 12%.

The largest multifamily structures that started in February were:

• The $500 million 400 Lake Shore Drive North Tower in Chicago, Illinois.
• The $400 million Alia at 888 Ala Moana Building in Honolulu, Hawaii.
• A $200 million mixed-use development in Gowanus, New York.