Construction Forecasts

News & Analysis

Heavy Construction Market Drivers Set to Weaken

05/12/2011 by Jim Haughey, RCD Chief Economist

Heavy construction market drivers remain misleadingly positive due to long time lags for many projects from assignment of public funds to construction. Similar to the institutional market, the flow of public funding has turned down. This will reach starts later this year and construction spending in 2012. The level of federal highway funding is uncertain beyond September 30th. Congress may budget by continuing resolution again which will delay any increase in highway funding. State highway funds will suffer from the current 2% drop in gasoline sales during then period of high prices which is expected to persist into next year.

Communications facilities are almost entirely private and will expand, with a lag, with the economy. Water and sewer construction will be steady with private site development offsetting federal subsidy declines. There is a risk of a serious fall in funding for transportation facility construction ahead if Congress refuses to fund the Presidents plan for rail improvements. This is likely. Power construction faces a cutback in federal funds for alternative energy electrical generation facilities. But the mandates requiring private utilities to use alternative power sources remain and will prevent as large a drop in power construction as usually occurs in this phase of the business cycle.

Key Indicators of the U.S. Market Environment — April 2011
Heavy/Engineering Construction
(Driven by demographics and government finances, as well as cyclical factors)

or Qtr.
Latest Level Recent
on Const.
Electric power capacity utilization rate,
% level (FRB)
81 79 Mar 80 Low Steady
Airline revenue passenger miles,
billions (RCD) (ann. % change)
3.2 2.9 Mar 1.6 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.)
815 838 Mar 840 Average Rising
Construction equipment shipments,
$M (U.S. Census Bureau)
1,886.0 3,113.0 Feb 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


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