After a big decline in September, the Dodge Momentum Index has rebounded 33.9 points or 29.3% over the past two months, 15.7 points in October and 18.2 points in November. The index now boosts its highest reading ever, eclipsing the February high of 144.0. The commercial and institutional sub-indexes posted significant increases for the month.
The Dodge 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 had fallen for three months in a row prior to October, creating a concern that a cyclical decline may have begun. However, the index roared back to post its highest score since we began tracking it in 2012. Month on month, (m/m) the index advances 13.9%. The 12MMA line had flattened-out prior to the November’s surge which caused the 12MMA line to uptick once again. Relative to the momentum indexes recent monthly scores, Septembers’ posting of 115.6 now appears to be an outlier.
Figure 2 breaks out the commercial sub-index and its 12MMA. The commercial sub-index shows a near mirror-image of the overall momentum image. This is because a significant ratio, (about 75%) of non-residential projects originates from the private sector. The commercial index soared 27.8 points or 19.6% in November. Similar to the overall index the 12MMA commercial line had flattened-out prior to the November’s surge which has caused the 12MMA line to trend upward again. The commercial sub-index was up 13.9% year on year, (y/y).
Figure 3 shows the institutional sub-index and its 12MMA. The institutional sub-index also moved higher albeit not nearly as much as the commercial sub-index. It increased by 6.5 points or 5.5% m/m. The 12MMA line shows that the recent previous downward trend has reversed as a result of two consecutive monthly increases. On a y/y basis the institutional sub-index was up 10.5%.
Referencing the Dodge momentum news release, it states that: “The turnaround in October and November suggest that building activity should continue to expand in 2018”.
Twenty-one new projects each with a value of $100 million or more entered the planning stage in November. For the commercial building sector, the largest projects include a $300 million mixed use facility containing two hotels at Atlanta’s Hartsfield-Jackson Airport and a $230 million Hayden Ave Life Sciences office campus in Lexington, MA. The leading institutional projects were a $200 million UPMC Vision and Rehabilitation Hospital in Pittsburgh, PA and a $200 million project that will provide additions and alterations for several schools within the Uniondale (NY) School District.
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.