Dodge construction index rebuffs recession fears, hits 14-year high

Dive Brief:

  • The Dodge Momentum Index (DMI) inched up 0.3% in June to hit a 14-year high for the benchmark that measures nonresidential building planning.
  • Manufacturing construction starts led the group and reached a record $41.6 billion over the last 12 months ending May 2022. That’s 161% more than the 12 months ending May 2021, according to Dodge data.
  • This peak is largely due to U.S. onshoring efforts, as more American companies move their manufacturing facilities back to the U.S.

Dive Insight:

Though the slight increase wasn’t dramatic, Dodge chief economist Richard Branch said it’s another data point that shows a sign of strength in the construction industry.

A total of 27 projects with a value of $100 million or more entered planning in June, according to the release. Year-over-year, the DMI was 9% higher than in June 2021. The commercial component was 11% higher, while the institutional component was 5% higher than one year ago.

Branch added, however, this positive sentiment will soon come under fire, especially as the Federal Reserve’s tightening policy to fight inflation has increased the possibility of driving the economy into recession either later this year or at some point in 2023.

“A new cyclical high in the Momentum Index is a sign that developers feel that projects still have hope of moving forward, despite concerns of an impending economic slowdown,” said Branch in the Dodge press release. “However, this sentiment will be tested in the months to come as higher interest rates eat away at business and consumer confidence.”

Associated General Contractors of America reported a drop in nonresidential projects in May, a third consecutive month of decline. Total nonresidential spending fell 0.6% to $832.5 billion, though it was still up 1% in the last year.

But the jump in the DMI, which leads construction spending for nonresidential buildings by a full year, is largely due to efforts from American companies to bring manufacturing facilities back to the U.S. That includes projects related to electric vehicle factories, chip plants and food related production facilities. 

Major manufacturing hubs include the West and South regions, namely states such as Arizona, and Texas, according to Dodge. Major projects include the $9.98 billion Intel chip factory and the $5.98 billion Taiwan Semiconductor factory, both in Arizona.

Dodge forecasts South manufacturing starts to reach $12.82 billion in 2022, a 3% increase from a year ago. In the West region, Dodge expects manufacturing starts to reach $14.39 billion in 2022, about a 47% increase from a year ago.

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