Heavy Engineering (Non-Building) Construction Spending Slips in January

Heavy engineering (non-building) construction spending fell a slight 0.2% in January, ending five consecutive monthly increases, after advancing 1.7% in December. On a year-over-year basis, January heavy engineering spending increased 8.5%. Transportation and water and sewer were the only major heavy engineering spending categories that increased for the month, up 1.0% and 2.9%, respectively. Spending on power construction fell for the first time in six months, down 1.5% after increasing 2.5% in December. Nevertheless, power spending in January was up 23.0% compared to January 2011.

Continuing improvement in the economy will bolster spending by private industry on heavy engineering construction projects, offsetting some of the expected reduction in government spending. Congress continues to struggle with transportation funding. However, the Senate has passed, with difficulty, legislation providing $109 billion in funding over two years. This falls well short of the House version that would provide $260 billion in funding over five years. At present, it looks like the compromise legislation most likely to pass will be close to the Senate version. There is a high probability that a continuing resolution funding highway construction for 90 days will be enacted so that the two chambers can resolve their differences between the two versions in a more leisurely fashion. There is some possibility that the House will simply pass the Senate version by March 31 when funding would run out, but we do not pin much hope on this outcome.

Taking all these factors into consideration, the forecast is for heavy engineering projects construction spending to increase 7.7% in 2012 and 3.3% in 2013.