In June, as project owners became spooked by the likelihood of recession at a time when interest rates are rising and continued volatility in materials pricing occurred, non-residential construction starting falling.
The decline in commercial construction starts became evident in the following sectors:
- Retail, warehouses and offices fell 16%
- Institutional starts including education, healthcare and public buildings fell 12%
Construction Dive stated that according to the latest Beige Book reading, the Federal Reserve's formal measure of economic activity, some construction activity has begun to slow in various regions around the country as commodity pricing, building permit applications and even calls for construction workers ease.
"Construction markets are getting jittery as the odds of recession increase. While projects are still moving through the planning process, the velocity has downshifted, reflecting uncertainties over how rising interest rates will impact the economy, construction material prices and ultimately, construction starts."
Chief Economist for Dodge | Richard Branch
Branch stated that construction indicators are likely to be more volatile than normal, particularly in the commercial sector. The downbeat nonresidential numbers, which helped to drag all of construction down 5% in June, came on the heels of the Federal Reserve's Beige Book report which showed evidence of slowing construction activity amid recession fears.
On the residential front, multifamily starts, which include apartment buildings, fell 3% lower for the month. But for the year, multifamily starts were still 25% higher.
According to Dodge, not all the news was bad. Non-building construction starts were up 13% in June, which included:
- Roads
- Bridges
- Power plants
Total construction starts were still 7% higher for the year, with nonresidential projects posting a 17% gain over 12 months.
That good news was also reflected in the latest release of the Architectural Billings Index, a measure of work architects are starting now, which typically predates construction by nine to 12 months. June's ABI came in at 53.2, with any reading above 50 indicating an increase in activity. Still, that was slightly down from May's number at 53.5, and a reverse of the trend seen earlier in the year.
The AIA reported in its release of the numbers that after a burst of stronger growth in the spring, the pace has returned to a more modest area over the last two months. Still-rising inflation, as well as higher interest rates and a continued shortage of certain building and construction materials, means that the future is looking increasingly cloudy.
Another article in Construction Dive stated that the emerging signs of slowing demand follow three interest rate hikes this year by the Fed, which is set to meet again July 26-27, when it is expected to raise rates another 0.75 percentage points in its battle to lessen historic inflation.
Construction Equipment reports that for the 12 months ending June 2022, total non-building starts were 2% lower than in the 12 months ending June 2021. Environmental public works were up 3% and street/bridge starts gained 7%. Miscellaneous nonbuilding starts were 27% lower and utility/gas plan starts were down 5%.
Through the first six months of 2022, non-residential building starts were 13% higher than during the first six months of 2021. Commercial starts advanced 14% and institutional starts rose 1%, while manufacturing starts were 83% higher on a year-to-date basis.
Regionally, total construction starts in June rose in the Northeast and West, but fell in the Midwest, South Atlantic and South Central.