Manufacturing construction jumps in May, up 72% YTD

An 8% rise in total construction starts in May to a seasonally adjusted annual rate of $1.11 trillion was led by the nonresidential sector, which saw a sizable gain in manufacturing starts, according to Dodge Construction Network. Nonresidential building starts also rose 8% for the month to a seasonally adjusted annual rate of $412 billion, with publicly funded manufacturing starts the driving force behind the increase.

According to Richard Branch, chief economist for Dodge Construction Network, May’s data is another sign that “the construction is breaking in two, between the project types that are mostly funded by public dollars, which would be infrastructure, parts of the institutional building space and increasingly manufacturing, thanks to the CHIPS and inflation reduction act as opposed to the more private side of the market.

“Public dollars are flooding into the manufacturing and infrastructure sectors,” he added, “leading to significant growth over the last year.”

Conversely, the private sectors of the building market, such as offices, multifamily and retail, are struggling due to higher interest rates, tightening lending standards and declining demand, Branch said. The sharp pullback in office and retail starts prompted commercial starts to tumble 20% in May, even as hotel starts moved higher. Institutional starts fell just 1%, with education starts falling but healthcare increasing, Dodge reported.

Of nonresidential building projects to break ground in May, the largest were manufacturing projects, including the $1.9 billion Steel Dynamics aluminum plant in Columbus, Miss., the $1.9 billion Eli Lilly & Co facility in Indianapolis, Ind., and the $1.5 billion Ford Ohio EV plant in Sheffield, Ind.

On a year-to-date basis, total nonresidential starts were 1% lower than the same period in 2022. Institutional starts rose 12%, manufacturing starts were down 11% and commercial starts dipped 7%. However, for the 12 months ending May 2023, total nonresidential building starts were up 26%, led by manufacturing, which soared 72%, followed by institutional starts (+22%) and commercial starts (12%).

Nonbuilding up but residential dips

Dodged reported nonbuilding construction starts up 24% in May to a seasonally adjusted annual rate of $347 billion. Utility/gas plants, which jumped 53% for the month, powered the increase. Street and bridge starts moved 22% higher, and environmental public works rose 3%. Miscellaneous nonbuilding starts were unchanged.

Two of the largest nonbuilding projects to break ground in May were in Texas, including the $5.3 billion first train for the Port Arthur LNG project in Port Arthur, and the $1.5 billion Southeast Connector Interchange highway project in Fort Worth. Rounding out the top three for the month was the $925 million Amtrak/Metro Norwalk Bridge Replacement project in Norwalk, Conn.

Year-to-date, nonbuilding starts gained 25%. Utility/gas plants rose 76%, and miscellaneous nonbuilding was up 27%. Highway and bridge starts gained 16%, and environmental public works were up 11%.

For the 12 months ending May 2023, total nonbuilding starts were 30% higher compared to the same period last year. Utility/gas plant starts climbed 68%, and miscellaneous nonbuilding starts were 27% higher. Highway and bridge starts were up 22%, and environmental public works rose 18%.

Residential building softened in May, dipping 4% to a seasonally adjusted annual rate of $356 billion. Single-family starts fell 2% following four consecutive monthly gains, with multifamily starts dipping 8%. On a year-to-date basis, total residential starts showed substantial weakness, down 25%, largely on a 31% decline in single-family; multifamily starts declined 12%.

For the 12 months ending in May 2023, residential starts were 15% lower than in 2022, with single family down 26% and multifamily up 9%.

Challenging second half ahead

For the first five months of 2023, total construction starts were 6% below the same period in 2022. Residential starts were down 25%, nonresidential starts were 1% lower, and nonbuilding starts gained 25%.

For the 12 months ending May 2023, total construction starts were 9% higher. Nonbuilding starts jumped 30%, while nonresidential building starts gained 26%. However, on a 12-month rolling basis, residential starts saw a 15% decline.

According to Branch, “The second half of the year is shaping up to be a challenging one. But the insulation provided by manufacturing and infrastructure starts will stabilize the industry and lead to modest overall growth.

“We continue to think that the back of 2023 will be particularly soft in those more private sectors, but that we should see more than enough strength on the public side of the market in manufacturing, institutional and infrastructure to hold the year pretty much even.”