Construction Spending Up On Manufacturing Starts, But Residential Construction Lags

Multifamily starts dropped to an annual rate of 334,000 units in August, down 41% compared with the same month in 2022, according to the Census Bureau, and off 26.3% month-over-month. Single-family starts dropped 4.3% for the month, coming in at an annualized rate of 941,000 units, but edged up by 2.4% compared with a year ago.

Overall, residential starts were at an annualized rate of 1.28 million units in August, down 14.8% for the year, and 11.8% for the month, at their lowest level since the early pandemic in 2020, the bureau reported.

Despite the residential drop, construction spending was up in August as nonresidential projects picked up the pace, to an annualized rate of $1.3T, Dodge Construction Network reports. Nonresidential building starts were up about 40% year-over-year in August to an annualized rate of $475B, as manufacturing facilities broke ground.

Manufacturing starts rose 285% month-over-month in August, mostly as a number of large projects got underway. These include a $2.5B semiconductor factory and a $2B electric vehicle factory, both in in North Carolina, Dodge reports.

Higher interest rates are the main factor in the residential slowdown, according to the National Association of Home Builders, but there are other headwinds as well: high construction costs, skilled labor shortages and a dearth of buildable lots.

Permitting, a more forward-looking indicator of multifamily construction, was down as well, with an annual rate of 535,000 units receiving permits in August, the Census Bureau reports. That was down 17.7% compared with a year earlier. Single-family permitting was up 7.2% in August year-over-year.