The Dodge Momentum Index fell 3.1 points in August to 129.1 or -2.3% month on month, (m/m) from its revised July reading of 132.2. A large drop in the commercial sub-index was the main reason for the decline.
The Momentum Index is a monthly measure of the initial report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year.
Figure 1 presents the Dodge momentum index and its twelve month moving average, (12MMA) from 2012 to present. The index has been trending higher since mid-2015. However, the rate of growth (slope), has flattened-out over the past several months when viewed on a 12MMA basis. On a 12MMA metric, the momentum index was down 0.3% year on year (y/y), its second negative growth month in a row y/y.
Figure 2 breaks out the commercial sub-index and its 12MMA. The commercial sub-index has also plateaued over the past few months when viewed on a 12MMA basis. In August, the commercial sub-index tumbled 8.7%, on the heels of a 3.8%, (revised downward) fall in June. It moved down 2.6% on a 3MMA and was off 0.5% on a 12MMA y/y basis. This was the first month since August 2016 that the 12MMA recorded a drop. Office building construction has witnessed a steep rise over the past year. The fallback in August for commercial gets planning activity back to a more sustainable pace of development.
Figure 3 shows the institutional sub-index and its 12MMA. The institutional sub-index moved up 7.3% m/m, was up 0.7%, 3MMA y/y and down 0.1% on a 12MMA y/y comparison. The institutional sub-index has historically been volatile from month to month. This month’s reading was 125.8, 8.6 points higher than June’s 117.2. April and May’s scores were 118.8 and 123.1 respectfully.
In August, eight projects entered planning each with a value of $100 million or more. For the institutional building sector, the leading projects were the $230 million University of New Mexico hospital replacement project in Albuquerque, NM and a $218 million high school in Aledo, TX. The leading commercial building projects were the $205 million Niagara Falls Grand Hotel in Niagara Falls, NY and a $178 million Amazon fulfillment center in Salem, OR.
At Gerdau we regularly monitor the strong relationship established between the Dodge Momentum Index and actual non-residential construction spending one here hence. This is a valuable leading indicator for planning purposes for construction industry professionals including you our valued customers.