Heavy Engineering (Non-Building) Construction Spending Drops Again in February

Heavy engineering (non-building) construction spending dropped 1.9% on a seasonally adjusted (SA) basis in February after falling 0.9% in January. On a year-to-date not seasonally adjusted (NSA) basis, heavy engineering spending increased 7.9% from the same period in 2011. All of the major heavy engineering spending categories were down for the month, although all except transportation and conservation and development were up on a year-to-date basis compared to a year ago. (Transportation was down 4.2% and conservation and development 20.6%.) Power construction spending, despite falling 1.6% (NSA) in February and 2.8% in January, was up 22.9% year-to-date compared to a year ago.

Although continuing improvement in the economy will bolster spending by private industry on heavy engineering construction projects, significant drag is expected from reduction 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 to take effect since the last long-term funding authorization expired in September 2009. Over the past few months we have been lowering our forecast of government spending for infrastructure due to the politics surrounding such issues as enacting reasonable long-term transportation funding. As a result of this, downward revisions in the December and January data, and lower spending in February, we reduced our forecast of highway spending growth in 2012 from 6.4% last month to this month’s 1.6%.

Taking all these factors into consideration, the forecast is for heavy engineering projects construction spending to increase 4.4% in 2012, down from last month’s 7.7%, and 2.6% in 2013, down from 3.3% last month.