The stimulus funds almost offset the huge drop in the usual sources of institutional construction funding. This includes tax collections, bonding and earnings in capital funds. State tax collections have been falling sharply for a year. This is the deepest drop in more than five decades. Capital fund balances are now improving with rising stock market indexes but are still 25% or more below previous peak balances.

Institutional building managers with steady or rising cash flow from current services have made and will make the fewest cutbacks in construction plans. Both hospital patient revenue and higher education tuition payments continue to rise through the recession. However, hospital managers have put some scheduled construction on hold waiting for the outcome of the healthcare debate in Washington. If their fees for government sponsored patients are cut they may not be able to afford some of their current building plans. But if the federal government pays them to serve currently unserved people they will need additional space quickly.

Heavy construction spending is 5% above the credit crisis low last January but has recently slipped below the peak level reached last fall. With all of the key market drivers now negative, a 4-5% drop is expected over the rest of the year, followed by very sluggish expansion early next year — largely from the stimulus plan — and then return to the 10% growth trend in the second half of next year.

The expected pickup late next year will result from more site development when building construction is again growing and a resumption of expansion in private facilities in a stronger economy.

The federal Highway Trust Fund is near bankruptcy and the six year federal highway spending program expires at the end of September. Congress will extend the expired plan — little if any increase in spending level — into next year until a new plan is enacted. The new plan will require some general fund tax money so it is not expected to be as much more than the expired plan as the highway industry requested. So far the shovel ready stimulus funds have more than offset the problems in the Trust Fund. But this will not continue beyond mid 2010 without a large contribution from general fund tax money. However, mid 2010 is about when the current sharp slide in spending for private heavy facilities begins to reverse in a stronger economy and stimulus plan transportation funds begins to be spent.

Key Indicators of the U.S. Market Environment — Sept 2009 Heavy/Engineering Construction (Driven by demographics and government finances, as well as cyclical factors)
	Year Ago	Previous Month or Qtr.	Latest		Level	Recent Trend	Impact on Const.
Heavy/Engineering
Federal highway trust fund, $ billions (U.S. Treasury Dept.)	7.026	7.207	Aug	12.160	Low	Rising
Electric power capacity utilization rate, % level (FRB)	80	77	Aug	79	Low	Falling
Airline revenue passenger miles, billions (RCD) (ann. % change)	-1.6	-4.1	Aug	-3.7	Low	Falling
State & local govt. capital spending, $ billions (U.S. Commerce Dept.)	349	348	Q2	360	Average	Steady
State and local government tax receipts, $ billions (U.S. Commerce Dept.)	1357	1272	Q2	1253	Low	Falling
Heavy contractor employment, 000s (U.S. Labor Dept.)	966	854	Aug	845	Average	Falling
Construction equipment shipments, % change y/y (U.S. Census Bureau)	5.2	-42.4	July	-44.9	Low	Falling
Abbreviations: y/y = year over year; WE = week ending; FRB = Federal Reserve Board; RCD = Reed Construction Data. Table: Reed Construction Data and Reed Construction Data - CanaData.