Dodge Momentum Index Bounces Back

Michael Tucker

November 16, 2017

The Dodge Momentum Index--a leading indicator of future commercial real estate construction--rose in October, climbing 13.2 percent to 130.9 from September's revised 115.6 reading.

Published by McGraw-Hill Construction, New York, the momentum index tracks commercial building projects in the planning stage, which generally leads actual construction spending by one year.

October's increase nearly reversed the index's erosion seen over the prior four months--including a nearly 8 percent decline in September--with October posting "healthy" gains in both sectors, McGraw-Hill said. From September to October the index's commercial portion advanced 16.8 percent and the institutional portion grew 8.3 percent. Year-over-year, the commercial portion is up 5.5 percent and the institutional portion is up 6.9 percent.

"October's increase supports the belief that building activity has further room to grow during this cycle," the report said. "While month-to-month activity could continue to be volatile, there are enough projects in the pipeline to sustain growth into 2018."

Mark Vitner, Senior Economist with Wells Fargo Securities, Charlotte, N.C., noted an "upturn" in building plans. "The Dodge Momentum Index climbed in October, returning near its level in July. However, the DMI is still 9.1 points below its cycle peak reached in March," he said. "Beyond recent volatility, the DMI suggests some moderation in nonresidential construction activity. Further evidence for this trend comes from recent slowing in construction spending and commercial real estate transaction volumes."

Another leading indicator, the Architecture Billings Index from the American Institute of Architects, Washington, D.C., paused in September after seven months of steadily growing demand for building design services. The ABI, which reflects the nine- to twelve-month lead time between architecture firm billings and actual construction spending, fell to 49.1 from 53.7 in the previous month. A score below 50 indicates decreasing demand for design services.

"We've seen unexpectedly strong numbers in design activity for most of 2017, so the pause in September should be viewed in that context," AIA Chief Economist Kermit Baker said. "Project inquiries and new design contracts remain healthy, and the continued strength in most sectors and regions indicates stability industry wide."

In October, 20 projects with $100 million-plus values or more entered the planning stage, McGraw-Hill said. The largest projects included two Facebook data centers in Sandston, Va. valued at $400 million and $200 million, respectively. 

The DMI's fall between June and September should not be seen as predicting a "turn" in building markets, McGraw-Hill said. "Prior to the previous peak of the Momentum Index in January 2008 it had suffered similar significant declines, only to rebound and post strong gains in subsequent months in line with overall economic growth. Similarly, the Momentum Index posted healthy gains from late 2016 through early 2017. Economic growth remains solid and building market fundamentals are supportive of further growth in construction activity."

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