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Dodge Momentum Index Trends Higher09-17-15 | News

Dodge Momentum Index Trends Higher
Planned Commercial Projects Fuel Rise

Developers of eight large commercial projects began planning in August, triggering a 2.8 percent hike in the Dodge Momentum Index.

The commercial sector drove the Dodge Momentum Index, a gauge of nonresidential building projects in planning, to jump 2.8 percent in August to a reading of 128.3.

It stood at 124.8 in July.
The Momentum Index, maintained by Dodge Data and Analytics, is a measure of nonresidential projects in the earliest stages of development. Typically, a project's initial planning report precedes construction spending by a full year. Dodge Data began compiling the Momentum Index in 2000, and has been using the number 100 as its benchmark level. It also maintains indexes for each of the commercial and institutional sectors.

"Planning data continues to trend higher following a weak start to the year, in response to improving economic data and real estate market fundamentals, which bodes well for construction spending through the first half of 2016," Dodge Data and Analytics said in a news release.

The index improved in August because of a strong increase in new plans for commercial buildings, up 8.4 percent from July. This metric jumped to 143.3 in August from 132.1 the month before.

But the institutional building sector declined 5.2 percent after surging in July. This metric dropped to 109.7 in August, from 115.8 the previous month.

On a year-to-year basis, the commercial category is 20.6 percent higher, and the institutional segment is up 5.1 percent. Ten large projects, each in excess of $100 million, began planning in August. Eight of those are in the commercial sector, and two are institutional. In the commercial group, the list of projects include a $500 million mixed-use development in Santa Clara, Calif.; a $400 million hotel near JFK International Airport in New York, N.Y.; and a $350 million warehouse in Orlando, Fla. Under institutional, a $400 million hospital is planned in Phoenix, Ariz.; and a $150 million assisted-living facility is in the works in Seattle, Wash.

The Dodge Momentum Index was at 125.3 in July, compared to 118.9 in June, an increase of 5.4 percent. The commercial sector improved 4.9 percent from June to July, while the institutional segment shot up 6.0 percent on a month-to-month basis.

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Construction activity is steadily picking up steam, as evidenced by the second-quarter Construction Backlog Indicator, an index maintained by the Associated Builders and Contractors.

The CBI expanded by 1 percent to 8.5 months during the most recently completed three-month period. Even though the CBI is relatively unchanged from a year ago, it is still indicative of an ongoing recovery in nonresidential building projects, the ABC said.

"The nation's nonresidential construction industry is now one of America's leading engines of growth," Anirban Basu, chief economist for the ABC, said. "The broader U.S. economic recovery is now in its 74th month, but remains under-diversified, led primarily by a combination of consumer spending growth, as well as residential and nonresidential construction recovery.

"Were the overall economy in better shape, the performance of nonresidential construction would not be as closely watched," Basu added. "The economic recovery remains fragile, despite solid GDP growth for the second quarter, and must at some point negotiate an interest-rate tightening cycle."

There has been a general tendency for commercial construction to follow residential construction. If that continues to be the case, the recent rise in residential starts should be followed by increased commercial activity in the near future. "All of this should set the stage for further rebounds in CBI during the quarters to come, even in the absence of a long-term policy regarding infrastructure investment in the U.S.," Basu said.

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