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Construction Starts Lose Ground in July

Total construction starts fell 7 percent in July to a seasonally adjusted annual rate of $631.6 billion, according to Dodge Data & Analytics. The decline was due to a significant pullback in the nonbuilding segment, which fell 31 percent from June to July. Nonresidential building starts rose 3 percent.

Year-to-date through seven months, starts were 15 percent down from the same period in 2019. Nonresidential starts plummeted 25 percent. For the 12 months ending July 2020, total construction starts fell a more modest 5 percent from the same period a year earlier. Nonresidential building starts were 11 percent lower. In July, the Dodge Index fell 7 percent to 134 (2000=100) from the 144 reading in June. Compared to a year ago, the Dodge Index was down 32 percent.

“The July decline in construction starts should not be interpreted as a setback on the sector’s road to recovery,” says Richard Branch, chief economist for Dodge Data & Analytics. “The gains in the nonresidential and residential sectors mirror the general overall improvements in the economy. The drop in public works could represent a settling back in activity following a solid spring in which some projects broke ground earlier than expected to take advantage of the fewer cars on the road during the COVID-19 shutdown in March and April. While the recovery progresses, the Congressional impasse preventing the extension of enhanced unemployment insurance benefits and small business loans included in earlier fiscal support packages casts a pallor over the future trajectory for growth. Furthermore, the gain in nonresidential building starts was entirely due to strength in the Northeast and West regions, with starts in the South Atlantic and South Central regions down sharply during the month. While one month doesn’t constitute a trend, the potential risk to construction from the rising number of COVID cases in these regions is significant.”

Nonresidential building starts increased 3 percent in July to a seasonally adjusted annual rate of $202.6 billion. Commercial starts gained 13 percent led by gains in hotels, warehouses, and office buildings. Institutional starts rose 2 percent due to an increase in education activity.

Year-to-date, total nonresidential building starts were 25 percent lower in the first seven months of 2020. Institutional building starts were down 16 percent, while commercial starts were 32 percent. For the 12 months ending July 2020, total nonresidential building starts dropped 11 percent from the 12 months ending in July 2019. Commercial starts were 12 percent lower, while institutional starts were down 10 percent.