Dodge Reports Indicate Lower Rates Could Bring Flood of Construction Projects

A leading indicator of future nonresidential construction spending shows potential good news for contractors.

The Dodge Momentum Index posted a 7.9% increase in July over June, rising to 216.3. The index also indicates that the planning is spreading out to other nonresidential sectors beyond data centers.

“While data centers have had an outsized influence on nonresidential planning activity in recent months, more momentum is building across many other major sectors and diversifying the story behind July’s growth,” said Sarah Martin, associate director of forecasting at Dodge Construction Network.

“The potential Fed rate cut in September is becoming increasingly more likely, alongside slower inflation and weaker labor market conditions. This is likely driving owners and developers to remain optimistic about 2025 market conditions and pushing more projects into the planning queue.”

She noted that commercial planning increased by 6.8%, and institutional planning expanded by 11.1%. Healthcare was a big driver for the expansion, Dodge says.

Year-over-year planning also rose significantly. The index is 17% higher than in July of 2023. “The commercial segment was up 35% from year-ago levels, while the institutional segment was down 14% over the same period,” Dodge reports. 

The news, however, follows a disappointing June in construction starts – a 19% drop, according to Dodge Chief Economist Richard Branch.

Still, total construction starts were up 1% compared to June 2023. “Nonresidential building starts were down 7%, residential starts were up 7%, and nonbuilding starts were up 8% on a 12-month rolling sum basis,” Dodge reports.

Branch sums up the current construction market as a situation like much of the economy, as waiting on an interest-rate cut from the Federal Reserve.

“The construction market remains sluggish as high interest rates continue to reverberate through the sector,” Branch says. “However, the Dodge Momentum Index, which tracks nonresidential building projects entering the planning phase, has been reasonably steady over the last year indicating that owners and developers remain cautiously optimistic that the conditions will be more conducive to construction in the future. But moribund starts activity means that these projects are piling up like water behind a dam. Lower rates in 2024 will allow these projects to start flowing again, resulting in a quicker pace of activity towards year-end.”