Construction Forecasts

Heavy Construction Market Drivers Still Strong But Will Weaken

Heavy construction market drivers remain very positive but this is misleading. There is a considerable measurement lag. The next round of reports will show growing weakness in public appropriations at all levels of government. Construction spending in this market is expected to be approximately steady, after inflation, in 2011-12 and weaken in 2013 following a sharp fall in construction starts in 2012. Steady federal highway funding is now assured through the end of the current fiscal year on September 30th but is in doubt beyond. The huge power market relied on rising energy demand and subsidies for alternative energy to triple from 2004-2009 but both of these drivers are now in doubt. The recent turn to higher energy costs will constrain power consumption and investment. And the revolt against public spending will cancel some of the planned subsidies for alternative energy and well as public transportation facilities Water and sewer spending should continue to expand modestly in line with expanded site development during the building construction recovery.

Key Indicators of the U.S. Market Environment — March 2011 Heavy/Engineering Construction (Driven by demographics and government finances, as well as cyclical factors)
	Year Ago	Previous Month or Qtr.	Latest		Level	Recent Trend	Impact on Const.
Heavy/Engineering
Electric power capacity utilization rate, % level (FRB)	83	82	Feb	78	Low	Steady
Airline revenue passenger miles, billions (RCD) (ann. % change)	1.0	5.6	Feb	-0.4	High	Rising
State & local govt. capital spending, $ billions (U.S. Commerce Dept.)	342	347	Q4	341	Low	Falling
State and local government tax receipts, $ billions (U.S. Commerce Dept.)	1,293	13,135	Q4	1,357	Low	Rising
Heavy contractor employment, 000s (U.S. Labor Dept.)	809	831	Feb	835	Average	Rising
Construction equipment shipments, $M (U.S. Census Bureau)	1,884.0	2,928.0	Jan	3,111.0	Average	Rising
Abbreviations: y/y = year over year; FRB = Federal Reserve Board; RCD = Reed Construction Data Table: Reed Construction Data and Reed Construction Data - CanaData