December’s strong Dodge Momentum Index predicts busy sectors in 2023

By Larry StewartJanuary 12, 2023

December strength in planning for healthcare and other nonresidential buildings is expected to carry into 2023. (Photo: Reuters)

Increasing interest rates arising from the Federal Reserve’s inflation fight have the construction industry focused forward into 2023. Current strength across the nonresidential construction sector helps to balance the threat of a quick plunge in construction’s buoyant fortunes.

December strength

The Dodge Momentum Index (DMI) improved 6.6% in December to 222.2 from the revised November reading of 208.3. In December, the commercial component of the DMI rose 8.4%, and the institutional component ticked up 2.7%.

Issued by the Dodge Construction Network, offers different perspectives on dynamics in the construction economy from the regular monthly government data estimates. The DMI tracks dollar value of nonresidential construction projects at the initial report for nonresidential building projects in planning, shown to lead construction spending for nonresidential buildings by a full year.

The Dodge Momentum Index improved 6.6% in December to 222.2 (2000=100), which bodes well for nonresidential construction for the coming 12 months. (Graphic: Dodge Construction Network)

“One of the key construction storylines for 2022 was the return of enthusiasm and optimism in prospects for nonresidential growth,” said Richard Branch, chief economist for Dodge. “While some of that will likely erode in 2023 as economic growth wanes, increased demand for some building types like data centers, labs, and healthcare buildings will provide a solid floor for the construction sector.”

Commercial planning in December was supported by broad-based increases across office, warehouse, retail and hotel planning. Meanwhile, institutional growth focused on recreation and public building, with education and healthcare planning activity remaining flat. On a year-over-year basis, the DMI was 40% higher than in December 2021; the commercial component was up 51%, and institutional planning was 20% higher.

A total of 15 projects with a value of $100 million or more entered planning in December. The leading commercial projects included a $500 million Vantage Data Center in Sterling, Va., and a $183 million mixed-use building in Chicago, Ill. The leading institutional projects comprised of the $400 million Acute Neuropsychiatric Hospital in Los Angeles, Calif., and a $185 million life sciences building in Philadelphia, Penn.

Expectations for 2023

“At least on the surface, the Dodge Momentum Indicator certainly would suggest that momentum should carry into 2023,” said Branch.

“I think to some degree it will, but obviously we need to keep in mind that interest rates are going to keep moving higher as the Fed continues its fight against inflation and there’s the very real fear that the economy will slow down considerably, particularly around the mid-point of the year.

“Our forecast is that we will barely avoid a recession in 2023. But regardless of what you want to call the slowdown – recession or not – there are some project types that will certainly take it on the chin from a construction standpoint. Most of those will be in the commercial sector – your traditional office buildings, hotel and retail structures.

“I think there’s reason to believe in positivity in healthcare and lifescience buildings and data centers,” said Branch, “Which should at least keep the nonresidential sector, on balance, relatively flat in 2023 from 2022.”

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