Heavy Engineering Construction Craters in January

03/27/2013 by Bernard M. Markstein

Heavy engineering (non-building) construction spending hit a huge pothole in January, dropping 4.9% on a seasonally adjusted (SA) basis. On a slightly positive note, January not seasonally adjusted (NSA) spending was 1.0% higher than in January 2012. November and December heavy engineering construction spending numbers were revised up substantially — $17.7 billion and $19.7 billion, respectively — due to significant increases in the power construction spending data. The revisions, 6.5% and 7.3% of the previously reported spending numbers, changed November’s 1.1% increase into a 7.7% increase and December’s 0.5% decline into a 0.3% rise.

The large revisions in the heavy engineering numbers were largely because of revisions in power construction spending numbers for November and December, which were revised up $19.1 billion and $19.9 billion, respectively — 20.6% and 21.2% of the previously reported numbers. The substantial revision of the power construction spending data was due to additional data that become available once a quarter. This normal quarterly revision was amplified by a rush to take advantage of tax benefits for certain power projects that were set to expire at the end of 2012. (Many of those benefits were eventually extended in a modified form as part of the January tax package.) Given the tax driven nature of November and December construction, the 12.4% plunge in power construction is not so surprising. That drop in spending is the reason that heavy engineering construction spending dropped so dramatically for the month.

Three categories were up for the month — communication (+1.4%), highway (+0.9%), and transportation (+0.3%) construction spending. January year-over-year, not seasonally adjusted (NSA) spending was up for all categories of spending except water and sewer construction spending, which was down 11.1%.

U.S. Heavy Engineering (Non-Building) Construction
(billions of U.S. current dollars)

  Monthly Figures (1)
(latest actual values)
3-Month Moving Average
  Nov-12 Dec-12 Jan-13 Nov-12 Dec-12 Jan-13
Transportation 39.2 38.8 38.9 39.9 39.9 39.0
  Month-over-Month
  % Change
-5.6% -1.1% 0.3% 0.7% -0.2% -2.2%
  Year-over-year
  % Change (NSA)
16.1% 7.3% 11.5%      
Communication 17.2 17.0 17.2 17.2 16.9 17.1
  3.3% -0.8% 1.4% 0.8% -1.6% 1.3%
  4.2% -8.2% 3.1%      
Power 111.7 113.7 99.6 97.8 105.5 108.3
  22.4% 1.8% -12.4% 8.2% 7.9% 2.7%
  45.5% 47.2% 0.1%      
Highway 78.3 78.6 79.3 78.1 78.1 78.7
  1.0% 0.3% 0.9% -0.7% 0.1% 0.7%
  -6.9% -5.4% 4.1%      
Water and Sewer 35.9 35.0 33.7 35.2 35.2 34.9
  3.8% -2.5% -3.6% 1.5% -0.1% -0.8%
  -2.4% -5.3% -11.1%      
Conservation & Development 6.1 6.0 5.9 6.3 6.1 6.0
  -3.4% -1.2% -1.0% -1.1% -2.9% -1.9%
  -8.5% -8.0% 2.1%      
Total (2) 288.3 289.1 274.8 274.5 281.7 284.1
  7.7% 0.3% -4.9% 2.9% 2.6% 0.8%
  14.2% 15.4% 1.0%      

(1) Monthly figures are seasonally adjusted at annual rates (SAAR figures).
(2) Total may not equal the sum of its components due to rounding.
Source: Census Bureau, U.S. Department of Commerce. Calculations: Reed Construction Data

The outlook for public funding for new heavy engineering construction projects remains poor for the next few years. As a result, many states and localities are using public-private partnerships to launch many new projects. At the same time, the private sector will find it advantageous to invest in heavy construction projects in areas such as power and communication. Heavy engineering construction spending is forecasted to increase 4.8% this year and to increase 6.7% in 2014.

U.S. Heavy Engineering (Non-Building) Construction
(billions of U.S. current dollars)

  Actual Forecast
  2009 2010 2011 2012 2013 2014
Transportation 36.7 38.3 34.9 37.3 40.9 44.6
   Year-over-year % Change 3.5% 4.5% -9.1% 7.1% 9.5% 9.2%
Communication 19.8 17.7 17.5 17.1 17.9 19.2
-25.4% -10.2% -1.1% -2.5% 4.9% 6.9%
Power 88.9 77.9 74.0 97.9 106.4 114.9
  9.6% -12.3% -5.1% 32.3% 8.7% 8.0%
Highway 82.2 82.5 78.9 79.5 81.4 85.2
1.0% 0.4% -4.4% 0.7% 2.4% 4.7%
Water and Sewer 40.3 41.3 36.8 35.4 33.8 35.3
  -5.1% 2.5% -11.0% -3.8% -4.4% 4.3%
Conservation & Development 5.8 7.2 7.4 6.2 6.0 6.3
9.9% 24.7% 2.8% -16.5% -2.1% 3.8%
Total (1) 273.5 265.0 249.4 273.3 286.4 305.5
0.5% -3.1% -5.9% 9.6% 4.8% 6.7%

(1) Total may not equal the sum of its components due to rounding.
Source: Census Bureau, U.S. Department of Commerce. Forecast: Reed Construction Data.

Read more forecasts from Reed Construction Data:

Construction Spending Stumbles at the Beginning of 2013
Nonresidential Building Construction Spending Drops in January
New Residential Construction Spending Chugs Higher in January