CHICAGO

After several mega projects in the energy sector pushed the value of construction starts up 10% in May, total starts fell back 19% in June, to a seasonally adjusted annual rate of $1 trillion, according to the Dodge Construction Network. Beyond commercial construction, single-family residential starts remain robust, and are a positive forward-looking indicator of future demand across all construction sectors.

“Growth in single-family will incentivize further demand for retail, health, and education starts,” says Dodge Construction Network Chief Economist Richard Branch. "And stability in the Dodge Momentum Index (DMI), which tracks projects in planning, underscores this optimism.” Despite the volatility in starts, the DMI increased by 10.4% in June, with commercial planning increasing 14.5%. “Planning momentum indicates confidence in 2025 market conditions,” Branch says, noting the DMI is up 43% from pre-pandemic levels.

Even as material prices moderate, challenges to International and Domestic freight rates could add upward pressure on shipping costs across the second half of 2024. After Q2 diesel fuel prices hit their lowest point since January 2022, price increases noted by an Associated Builders and Contractors’ (ABC) analysis of U.S. Bureau of Labor Statistics data point towards a bottoming-out of both rates and availability for domestic trucking.

Likewise, the stalemate over a renewed labor deal between the International Longshoreman’s Association and nearly 85,000 dockworkers across the Gulf and other East Coast ports has the potential to result in a strike if a deal isn’t reached by October.

Still, ABC notes that stabilization in cost inputs, coupled with anticipated cuts to interest rates as inflation cools is likely to buoy confidence for new projects. “The lack of material price escalation over the past 12 months is a welcome development for contractors,” says ABC Chief Economist Anirban Basu. “Ongoing price moderation, along with the prospect of lower interest rates by the end of the third quarter, should bolster contractor sentiment in the coming months.”

Our construction cost index shows a modest increase in costs for the 2nd Quarter 2024 after a period of either negligible or slower cost increases experienced across the prior 12 months. As decreases to inflation trigger interest rate cuts and material costs remain steady, we expect overall spending on non-residential construction to remain steady as conditions continue to improve. We recommend customers gauge their market-specific challenge of labor procurement while considering project starts on an opportunistic basis across the second half of 2024.