By Jim Haughey, Reed Construction DataThe heavy construction market remains stalled. Although jobsite spending increased 2.0% in June the gain was only back to last June’s level. The only two positive market drivers are construction equipment shipments and airline passenger traffic. The recent strong gain in equipment is heavily exports. Some of the gain also reflects rental fleet rebuilding after several lean years. Equipment usage on job sites is not yet causing a rise in equipment purchases. The strong and strengthening profit at airlines has not yet produced a rise in their airport facility spending but it likely will in the next year. The recent strength in airport construction is due to stimulus funds.
State and local government capital spending, a key market driver, has recently turned to decline as the variety of federal subsidies to states is now being offset by tax receipts stalled at a deep recession level and the exhaustion of budget reserves. Ominously, state and governments laid off 10,000 workers in July and local governments laid off 38,000 workers in July. More layoffs are ahead in the next few months. Income tax collections have stopped declining but sales and property tax receipts are still slipping in most states during the summer economic growth slowdown.
Ahead, the outlook is for little change in heavy construction activity for more than a year. And there may be a small dip in the summer. Construction funding from tax, budget reserve and standard bonding sources will slip lower over the next year. Some regions will experience a small pickup in federal stimulus funds but most will not. But these funding losses should be offset with a small number of tax rate increases, more funds for private facility investment in a still expanding economy, more use of federally subsidized “Build America” bonds and increased reliance on privately funded public facilities, especially highways.