Construction Economic News

Forecasts predict 09 construction slump; state receipts sag but stimulus plans grow

November 14, 2008

"It is hard to find a pulse in this year's batch of construction industry forecasts for 2009," Engineering News-Record reported on November 13. "McGraw-Hill Construction (of which ENR is part) is forecasting a 7.4% decline in construction starts in 2009, following declines of 12.4% this year and 8.0% in 2007. The U.S. Dept. of Commerce forecasts a 7.5% decline in total new construction put-in-place in 2009, following this year's 6.3% decline. The Portland Cement Association looks for construction put-in-place to fall 13.9% next year, after adjusting for inflation. FMI Corp. anticipates a 7.4% decline in total construction work next year. The National Association of Home Builders calls for housing starts to post their fourth consecutive year of double-digit declines, with another 16.2% drop in 2009."

“Mid-year shortfalls totaling $24.3 billion have opened up in the 2009 budgets of at least 31 states and the District of Columbia,” the Center on Budget and Policy Priorities (www.cbpp.org) reported on Wednesday. “Joining this list since the last update: Kansas, Kentucky, Maine and North Carolina. This new round of shortfalls is in addition to the budget gaps of $48 billion that 29 states closed as they adopted their budgets for this fiscal year. Twenty-one states now project deficits for 2010.” The Albany-based Rockefeller Institute (www.rockinst.org) reported on November 6, “State tax collections across the U.S. continued their downward trend during the third quarter of 2008….The preliminary look at 42 early-reporting states showed a growth rate of only 0.1% during the third quarter, when compared to the same period a year earlier. This is the first time the state tax collection growth rate remained essentially flat since the recession of 2002. Further deterioration is expected in the coming quarters, authors of the report noted.” The Washington Post reported today that Maryland’s general fund revenue collections declined 8.7% in October compared to October 2007, according to Comptroller Peter Franchot. “He said the figures ‘do not reflect the full effect’ of the economy’s slide over the past two months. Among the biggest factors was a decline in sales tax revenue.”

The sales tax drop is likely to continue. The Census Bureau reported today that retail and food service sales fell 2.8% in October, the largest one-month decrease since the series began in 1992 and a bad omen for retail construction.

Nevertheless, “more than half a dozen [states] have passed or proposed their own economic stimulus packages designed to reinvigorate local businesses with new construction, loans to hometown banks and other job-creating activities,” www.Stateline.org reported today. “The governors of New Jersey and California have summoned lawmakers back to their state capitols to take up their governors’ economic stimulus packages. Florida, Ohio and Vermont passed plans earlier this year. And the governors of Oregon, Washington and Wisconsin are pitching their ideas for legislators to act on in January….California Gov. Arnold Schwarzenegger (R) wants to get a jump on transportation construction slated for next year by using next year’s bond proceeds now. Ohio voters approved the final piece of the state’s $1.6 billion stimulus package, when 70 percent of them approved on Nov. 4 $400 million in bonds for environmental clean-ups. But just two months ago, states could barely sell their bonds on the open market….Since that scare, though, there’s been a “sea change” in the bond markets, and states have once again been able to sell their debt,” the e-newsletter said, quoting Sujit CanagaRetna, senior fiscal analyst for the Council of State Governments.

Organizations representing governments have been surveying members to document the large number of construction and other projects “ready to go” if funding becomes available. On Thursday, the U.S. Conference of Mayors put out a 222-page report listing nearly 4,600 infrastructure projects submitted by 153 cities that it said would cost a total of $24 billion and create 256,000 jobs “in metro areas” (www.usmayors.org/mainstreetstimulus). The American Public Works Association (www.apwa.net) released a survey of its members—mainly local public works agencies—that “identified more than 3,600 public works projects in localities, with a funding need totaling more than $15 billion….Funding these projects, just a sample of the identified local need, would generate approximately 532,794 jobs.”

Reports were mixed this week regarding power construction, a market that grew 33% in the first nine months of 2008, according to Census’s November 3 construction spending report. “Pennsylvania regulators yesterday approved the construction of a controversial high-voltage power line through part of the state, giving Dominion Virginia Power the final authorization necessary to begin construction on a 65-mile stretch through rural Northern Virginia,” the Post reported today. “Dominion officials …said construction will probably begin before January….Virginia and West Virginia have signed off on their sections of the $1.3 billion, 250-mile line; the decision yesterday by the Pennsylvania Public Utility Commission removes the last regulatory obstacle.” But the Public Service Commission of Wisconsin’s three commissioners unanimously rejected a $1.26 billion expansion of the Nelson Dewey Generating Facility in Cassville on Tuesday.

“Domestic hot-rolled [steel] prices that peaked at around $1,080 a ton in August are now swimming at below $800 a ton, some say below $700 a ton,” www.econoplay.com reported on Thursday. In addition, “deliveries from the mills that normally stretch over a month suddenly showed up in one week,” one steel service center executive told the e-newsletter.