Heavy Engineering (Non-Building) Construction Spending Down for the Third Month in a Row

Heavy engineering (non-building) construction spending slid a modest 0.3% on a seasonally adjusted (SA) basis in March, the third consecutive monthly decline, after falling 1.4% in February. On a year-to-date not seasonally adjusted (NSA) basis, heavy engineering spending increased 4.8% from the same period in 2011. Half of the major heavy engineering spending categories were up for the month — transportation (+2.0%), communication (+1.1%), and conservation and development (3.8%). However, on a year-to-date basis all of the categories except power construction spending were down compared to a year ago. Year-to-date power construction spending was up a robust 19.5% from a year ago. It was also the only major category to increase in 2011, up 14.4%.

Reduction in government funding for infrastructure projects continues to be the biggest threat to heavy engineering construction spending. Growth in the national economy will lead to spending by private industry on heavy engineering construction projects, offsetting (just barely) the cuts in government spending. Congress continues to struggle with transportation funding. At the end of March a 90-day extension of transportation funding was passed, the ninth temporary extension since the last long-term funding authorization expired in September 2009. It now appears unlikely that any long-term funding will be forthcoming before the November elections, meaning another temporary extension at the end of June when the current extension ends.

Taking all these factors into consideration, the forecast is for heavy engineering projects construction spending to increase 2.0% in 2012 and 2.4% in 2013. The 2012 forecast is down from last month’s 4.4% increase largely due to significant downward revision in the January and February data by the Census Bureau, revised down $5.4 billion and $3.8 billion, respectively.