Balancing the Good and Bad
After the last three years, the construction industry has grown lean and mean. Those contractors who have survived the recession have trimmed the fat and streamlined operations. Those public and private institutions that fueled big new construction have drastically cut their spending, and the manufacturers who make and supply machinery to the industry have been optimistically holding their breath.
Last year ended on a positive note. The latest numbers available said that construction spending totaled $807 billion in November 2011, the highest level since June 2010, as homebuilding, private nonresidential construction and public construction all increased compared to October, the Associated General Contractors of America reported in an analysis of new Census Bureau data. Association officials cautioned, however, that public spending will drop even further in 2012 because of delays in enacting needed infrastructure bills and planned cuts to many federal construction programs (mentioned below).
“Several segments of construction appear to be climbing out of a hole,” said the association’s chief economist, Ken Simonson. “The new year should reinforce recent year-over-year gains in apartment, power, manufacturing and private transportation construction. But November’s upturns in single-family homebuilding and public construction may not be sustainable.”
Simonson noted that total construction spending rose 1.2 percent in November from October and 0.5 percent from the November 2010 level. Private residential construction posted increases of 2 percent and 3.4 percent, with gains in single-family, multifamily and residential improvements. Private nonresidential construction spending inched up a negligible amount from October but gained 4.5 percent compared to November 2010. Public spending rose 1.7 percent last month but declined 5.3 percent from a year earlier.
The construction economist added that the uptick in private nonresidential construction from November 2010 was widespread, led by: manufacturing, up 12.6 percent; commercial (retail, warehouse and farm), up 12 percent; private educational, up 10 percent; private transportation, up 9.2 percent; and power (including oil and gas), up 8.4 percent. Most public construction categories shrank over the past 12 months, although the two largest had mixed results, Simonson observed. Highway spending increased for the sixth straight month, by 1.9 percent, but was 2.2 percent below the November 2010 mark. Public educational construction was up 0.5 percent for the month and 2.8 percent year-over-year. “Public construction segments face stiff spending cuts in 2012,” Simonson cautioned.
Association leaders said planned cuts to a range of federal building and infrastructure construction programs were likely to hurt the construction industry even as private sector demand finally rebounds. They noted that the federal budget for 2012 includes a more than 6 percent cut for construction programs and added that Congress is years late in passing much-needed water, aviation and surface transportation legislation.
“If lawmakers don’t act swiftly, they risk undermining a long-awaited recovery for the construction industry that could put tens of thousands of people back to work,” said Stephen E. Sandherr, the association’s CEO. “These cuts aren’t helping balance the budget, but they are keeping a major segment of our economy in check. For more information, visit www.agc.org.
Highway and Water Funding Cut in FY 2012
We all knew it was coming, but these big cuts still make Congress look like hockey-mask-wearing slashers. Congressional appropriators slashed investment levels for both highway and water infrastructure projects in appropriations bills passed in the closing days of the first session of the 112th Congress, according to the Associated Equipment Distributors (AED). These cuts will further impede a drastically underfunded and outdated infrastructure system.
The “Minibus” appropriations bill (H.R. 2112), signed into law in November 2011, designated $39.144 billion to federal highway programs through the highway trust fund. AED estimated, the five percent drop in funding from the $41.107 billion allotted to similar projects in 2011. Water infrastructure programs similarly fell victim to lawmaker’s spending aversions. The Clean Water and Drinking Water State Revolving Funds both took hits in the Omnibus Appropriations Bill (H.R. 2055) passed shortly before the 112th Congress ended its first session. The bill directed several reductions at the Environmental Protection Agency (EPA), cutting $101 million from the State Revolving Fund (SRF) budgets. With roughly 12 percent of water utility bids attributable to the purchase, rental and leasing of construction equipment, and to the cost of dealer-performed equipment repairs, the reduction in investment could cost the equipment industry $12 million in lost market opportunity.
The Clean Water SRF, used by states for water quality protection and wastewater infrastructure projects, was allotted $1.469 billion in 2012, a cut of more than $50 million. The Drinking Water SRF, which provides states the resources for potable water infrastructure projects, will receive $919 million in 2012 — $44 million less than in 2011. However, the budget for the Army Corps of Engineers was the one bright spot among infrastructure investments, receiving a slight uptick in 2012 funding levels. The Disaster Relief Appropriations Act of 2012 (H.R. 3672) and the “Omnibus” 2012 Appropriations Bill (H.R. 2055 and H.R. 3671) provided $5 billion to the Corps, which oversees large civil and water projects — a $145 million increase from 2011 investments, according to AED. For more information, visit www.aednet.org.
