2013 State of the Industry Report

In late October, we asked leading industry economists to once again look into their crystal balls to see what’s ahead for the coming year. Of special interest are their projections for highway, residential and nonresidential construction projects, as well as employment opportunities in these markets and the cost of raw materials.

Despite the relatively high level of uncertainty thanks to the recent recession, presidential election, concerns about the fiscal cliff and financial turmoil overseas, prognosticators agreed on many of the fundamental drivers.

Highway construction

ET: Traveling around the country this year, there appeared to be a fair amount of highway and bridge construction. Is this perception a reality or were many projects left unfunded? What’s in store for highway construction in 2013?

Ed Sullivan, chief economist, Portland Cement Association (PCA): Some of what you saw was real and some not so real, depending on where you were in the country. Each state spent its stimulus money in a different way. In fact, there is still some unspent money for larger projects that require more design time.

For 2013, a new highway bill provides a two-year commitment of funding equal to the previous bill, and it takes away some uncertainty. But it doesn’t factor in inflation. When coupled with the lack of stimulus, we expect a modest decline in highway and bridge construction. There should be an uptick in 2014 and 2015, thanks in part to a pent-up demand for repairs and new construction projects.

Dr. Alison Premo Black, senior economist, American Road & Transportation Builders Association (ARTBA): The highway and bridge construction market is mixed across the country. Contract awards for highway and bridge work are down in 28 states as of October 2012. This is a leading indicator that the value of work done in those areas will likely be down in 2013.

However, contract awards are up in 19 states and District of Columbia, showing market growth. The market is up or down within 5% in the remaining three states, pointing to a stable market.

Nationwide, we expect the real value of pavement work in 2012 to fall by about $1 billion to reach $46.6 billion in 2012, compared to $47.4 billion in 2011. The good news is in the bridge market — the real value of work is expected to reach a record high $29 billion in 2012.

Jeannine Cataldi, senior economist, and Karen Blanford, research manager, IHS Global Insight (IHS): U.S. highway and bridge construction for the first six months of 2012 was up 1.4% over 2011 levels for the same period. However, 2012 highway and bridge construction was about 3% below 2009 and 2010 levels for the first six months.

National figures can mask the wide variability that can be observed from region to region. By the end of 2012, we expect the District of Columbia to realize a 40% jump in highway and street construction spending, while West Virginia will see it decline 26%.

For 2013, the IHS forecast calls for spending on highways and streets to fall 5.4% in real dollar terms. This decline is the result of uncertainty across all levels of government. This segment will also be hampered as federal stimulus monies wane and state and local governments scale back budgets to deal with reduced revenues.

The Surface Transportation Act signed by President Obama in July essentially leaves funding at current levels, having little impact on our forecast. In the longer term, spending in the highways and streets segment should increase as aging roadways and bridges are upgraded or replaced.

Anirban Basu, chief economist, Associated Builders and Contractors (ABC): 2012 did see much road construction, primarily at the local level where resurfacing and other projects had been deferred for several years. Despite passage of the highway bill, uncertainty still plagued the planning necessary for larger highway construction projects.