Total construction starts for August did indeed fall (9%) as predicted from the lofty highs recorded in July. This is not alarming as you will see why.
Nonres Bldgs construction starts in July, $ as reported by Dodge, increased 75%+ from the previous month and 65%+ from the previous 3mo and 6mo avgs. That is a once in a decade increase. In 2018, starts posted an increase of 60%. The July and August 2022 starts is the only time starts exceeded that of 2018.
Historically, then starts would fall back to the 3mo or 6mo (normal) avg rate within the next two months. Never have starts increased the month after or even within the next several months after reaching such a high level. Until now. After posting a 75% increase in July, Nonres Bldgs starts for August increased 7%.
The total dollar value of Nonres Bldgs starts in July and August exceeded the total for all Nonres Bldgs starts in Jan+Feb+Mar+Apr.
Even assuming the next 4 months starts fall back to less than the avg rate before the extreme highs in July and August, Nonres Bldgs starts are on track to increase 20%+ for the year, an annual rate of growth achieved only once before, in 2014. With that assumption, for the next 4 months starts will fall 45% from the current high and still be enough to post the highest year ever. Don’t be alarmed if over the next 4 months Nonres Bldgs starts decline from the lofty highs in July and August. Those monthly highs seem unsustainable.
Non-bldg starts are on track to increase +14% total for 2022. Year-to-date non-bldg starts are up 21% with the largest increase in Utility/Gas plants. The entire decline in total starts for August was in non-bldg, but the August level, down 36% from July, is still the 2nd highest since Nov 2019 and in fact the 3rd highest ever.
What’s causing these huge gains? Along with moderate strength across many markets, mega-project starts in last 2 months. $25bil in 3 manufacturing plants, $15bil in 2 LNG projects (these are non-bldg) and $10bil for an airport terminal. Most of the spending from these projects, expected at the midpoint of construction, will occur after 2023.
Residential starts are on track to gain +2% in 2022. A 2% gain may not seem like much but is on top of a 23% gain in 2021 starts. The 1st six months of residential starts in 2022 is at an all-time high. Residential construction starts for JJA 3mo avg is down 10% from the peak in the previous 3mo. But that peak qtr, MAM, is up 5% from the total in 2021, which was up 22% from 2020. Residential starts fell a total of 14% over 3 consecutive months from the peak in Apr to Jul. Starts in August are up 1% from Jul. Avg starts for the last 20 months, in current $, are above the former high in 2005. But inflation adjusted constant$ would put recent starts 60% lower than the former 2005 highs.