Construction Starts Post Small Gain in May

Total construction starts rose 3% from April to May to a seasonally adjusted annual rate of $595.1 billion, following a 25% decline the previous month. Several large nonresidential building projects broke ground in May resulting in the gain. Removing those large projects from the statistics would have resulted in no change in starts over the month. In May, nonresidential buildings increased 8%, while residential building starts rose 4%. Nonbuilding starts, however, declined 4% during the month.

Through the first five months of 2020, total construction starts were 12% lower than in the same period in 2019. Nonresidential starts were down 19%, nonbuilding starts were 16% lower and residential starts were off 3%. For the 12 months ending May 2020, total construction starts were down 1% from the same period a year earlier. Residential buildings were 1% higher and nonbuilding starts were up 5%. Nonresidential starts, however, were 7% lower for the 12 months ending May 2020.

“While May’s increase in construction starts is certainly good news, the influence of several large projects undermines the notion that the construction sector has fully entered recovery,” says Richard Branch chief economist for Dodge Data & Analytics. “Even as state and local areas re-open and bans on construction activity in Boston, New York City and other areas are lifted, the sector will have to contend with digging itself out from a deep economic recession. While the overall economy most likely hit bottom in May, the recovery will be slow since nearly 20 million jobs have been lost since February. The second half of 2020 will be a slog and gains will be modest over the short term.”

Nonresidential building starts rose 8% in May to a seasonally adjusted annual rate of $188.8 billion following the very steep April decline related to COVID-19. However, the rebound was due to several large projects that broke ground in the manufacturing, hotel and education categories. Removing those projects would have led to a mild decline in nonresidential building starts in May. Commercial starts gained 6% in May and manufacturing starts rose 167%, but institutional building starts were flat.

The largest nonresidential building project to get underway in May was the $950 million SDI Steel Complex in Sinton, Texas. Also starting during the month was the $355 million Fig + Pico hotel towers in Los Angeles and the $360 million Wolf Point South Tower B building in Chicago.

Through this year’s first five months, nonresidential building starts were 19% lower than in the first five months of 2019. Commercial starts were 24% lower, while institutional starts were down 11%, and manufacturing was off 39% through five months. Over the past 12 months, nonresidential building starts were down 7% from the prior 12 months. Commercial starts were 6% lower, while institutional starts were down 5% and manufacturing starts dropped 16%.