Highway Trust Fund declines

According to NSSGA, on Nov. 19, the Federal Highway Administration announced that vehicle miles traveled (VMT) declined for the final 11 months of fiscal year 2008, resulting in a $3 billion slide in Highway Trust Fund revenues. September driving fell 4.4 percent, or 10.7 billion VMT, from 2007 to 2008. The cumulative VMT total for 2008 is 3.5 percent below the same point in 2007. The September figures follow the largest single-month VMT decline since records began in 1942. The HTF took in $31 billion in revenue in fiscal 2008, $3 billion less than fiscal 2007. Despite the decline, government transportation spending increased by $2 billion over fiscal 2007. Congress approved an $8 billion infusion for the trust fund earlier this fall after low balances threatened to cut the fund's payments to states. The fund still faces long-term solvency problems, and how to fund it will be a crucial part of the upcoming debate when Congress considers a highway reauthorization measure in 2009. In the interim, NSSGA continues to advocate for another economic stimulus plan with a significant infrastructure investment component. Your comment?

Obama to emphasize infrastructure

President-elect Barack Obama used his Saturday radio address to signal his intention to enact an economic recovery plan that includes infrastructure investment as one of its planks. He said: "I have already directed my economic team to come up with an Economic Recovery Plan that will mean 2.5 million more jobs by January of 2011 – a plan big enough to meet the challenges we face that I intend to sign soon after taking office. We’ll be working out the details in the weeks ahead, but it will be a two-year, nationwide effort to jumpstart job creation in America and lay the foundation for a strong and growing economy. We’ll put people back to work rebuilding our crumbling roads and bridges, modernizing schools that are failing our children, and building wind farms and solar panels; fuel-efficient cars and the alternative energy technologies that can free us from our dependence on foreign oil and keep our economy competitive in the years ahead. These aren’t just steps to pull ourselves out of this immediate crisis; these are the long-term investments in our economic future that have been ignored for far too long." Wow. A president firmly behind investing in roads and bridges. That would be a refreshing change. Your comment?

AEM predicts equipment sales

The construction equipment manufacturing industry expects continued business declines in the United States through year-end 2008 of 8.6 percent, followed by flat growth in 2009 of 0.04 percent, according to the annual “outlook” survey of the Association of Equipment Manufacturers (AEM).

“The overall slowdown of the past year or so, after record expansion, accelerated this fall with a worsening housing market and collapse of major financial institutions in the U.S. The continued financial turmoil is affecting commercial projects as well. While the strength of the global economy has spurred equipment export growth, we now face a slowdown here as well,” stated AEM President Dennis Slater. “This is certainly a challenging and unpredictable time. But we have learned from previous downturns how to operate more efficiently, and we are positioned for a rebound, hopefully as 2009 progresses, and into 2010,” he added. “Government measures to boost infrastructure investment will play a critical role in our industry’s recovery as well as strengthening the U.S. economy overall.”

Sales of concrete and aggregate equipment by year-end 2008 are predicted to decline 8.6 percent for the U.S. while increasing 20.4 percent for worldwide markets. For 2009, sales are expected to increase 4.6 percent in the U.S., and predicted to gain 3.9 percent for worldwide markets. Your comment?

PCA calls for infrastructure investment

As the nation struggles to deal with the largest economic crisis in decades, attention is focused on an economic stimulus bill that many believe should contain significant dollars for infrastructure improvements that will create jobs at both the local and state levels. According to Ed Sullivan, chief economist for the Portland Cement Association, if the government does not act quickly that nation could lose 2 million jobs in 2009.

"Times are tough. We need a government stimulus package that creates jobs throughout the nation," Sullivan said. “Infrastructure funding could create jobs on both an immediate and long-term basis. For every 10 construction jobs created by a project, the community gains 17 additional jobs that stay in the region even after a project’s completion.”

However, simply building and repairing roads is not enough for our continued economic stability. The projects must be constructed with the highest quality materials, according to PCA.

“If we used concrete instead of asphalt for all new roads built between now and 2015, state governments could save over $100 billion during the life of the roads. Concrete roads require minimal maintenance and can last nearly three times longer than a similar roads paved with asphalt,” Sullivan said. “This means more money for local economies that can go to schools, police, and other public services.”
Your comment?

White House turns back on infrastructure

Despite support from the president-elect, both House and Senate Democratic leaders and the top Republican in the Senate, the White House has been slowly walking away from earlier statements from administration officials that appeared to embrace a new round of stimulus spending, according to NSSGA. Infrastructure, in particular, has been highlighted as spending that is not stimulus in nature due to assertions of "long lag time" between authorizing and actually spending the money. The ATM and TCC coalitions have repeatedly communicated 3,000 projects worth $18 billion that are "ready to go." Now, the White House is reportedly saying Congress must first pass a stimulus bill before the White House will start negotiating on what it finds acceptable for inclusion in that bill, effectively throwing a wrench into the legislative process.

While there is a strong desire in the Democratic caucus to pass another stimulus bill, a new Congress has been elected and the moving in and moving out process has begun complicating passage of any bills in a lame duck Congressional session. Some Democratic staff are signaling that the Senate could take up one of two previously House-passed stimulus measures and get it to the president quickly. The first bill was a stand alone extension of jobless benefits and the second bill is the $60 billion stimulus bill that includes infrastructure funds. Meanwhile, congressional Republicans are calling for certain tax reforms to stimulate the economy, an option Democrats would rather wait on until a Democrat is in the White House to improve their bargaining leverage.

Nevertheless, President-elect Obama said in a press conference late last week that, "If it [a stimulus bill] does not get done in a lame duck session, it will be the first thing I do when I reach the Oval Office." NSSGA's letter to the president and president-elect urges infrastructure be included in the stimulus package.

NSSGA and its Americans for Transportation Mobility and Transportation Construction Coalition partners will continue to press Congress on the need to make infrastructure investment a key component of the next stimulus bill and urge passage before final adjournment of the 110th Congress.

The Obama Agenda

President-elect Barack Obama laid out an ambitious agenda during his successful campaign. NSSGA reviews specific agenda items of interest to the aggregates industry below:

Foremost on this list is transportation. Among the highlights are the creation of a "national infrastructure policy that recognizes that we must upgrade our infrastructure to meet the demands of a growing population, a changing economy and our short and long-term energy challenges." In addition, Obama and Vice President-elect Joe Biden state that "a robust federal infrastructure investment program today will help strengthen the U.S. economy and provide at least one million more U.S. jobs at a time when the housing and construction industries are slowing." Finally, Obama and Biden advocate the creation of a National Infrastructure Reinvestment Bank that would receive an infusion of $60 billion over 10 years in federal funds to finance transportation infrastructure projects across the nation by expanding and enhancing federal investments. According to their plan, these projects would create nearly two million new direct and indirect jobs as well as stimulate approximately $35 billion per year in new economic activity.

With regard to business, the Obama agenda focuses on small businesses and provides ideas on how to hold down healthcare costs as well as increase available capital for small and start-up businesses. One such proposal is the elimination of all capital gains taxes on such businesses in order to encourage innovation and job creation. From a tax standpoint, businesses that start or expand operations in the United States will see a reduction in their corporate income tax rate. On the environment, Obama has indicated that he will make combating global warming a top priority and will reinvigorate the U.S. Environmental Protection Agency.

PCA revises forecast

The weak economy and tight credit conditions, coupled with severe job losses and the resulting decline in state government revenues, will translate into significant weakness for the construction industry through 2010, leading the Portland Cement Association (PCA) to again adjust its cement consumption forecast.

The latest PCA forecast of cement, concrete, and construction predicts a 12.8 percent decline in cement consumption in 2008, followed by 11.9 percent and 2.1 percent declines in 2009 and 2010, respectively.
The PCA report cites the continued drop in residential starts and the erosion of the strong fundamentals supporting nonresidential construction as major factors leading to reduced cement consumption. The weak economy also has affected the public construction sector.

“Several economic factors are negatively influencing the construction industry,” Edward Sullivan, PCA chief economist said. “High energy prices, the sub-prime crisis, the melt-down of our financial markets, inflation, job losses and tight lending standards are combining to create weak economic conditions and the emergence of huge state deficits. Public construction accounts for nearly half of all the total cement consumption in the U.S., and states in poor fiscal condition will need to cut back on this spending.”

PCA expects cement consumption in residential to decline 31.7 percent in 2008 and 16.9 percent in 2009, but a rebound of the market in the second half of 2010 will lead to a 12.1 percent increase in consumption in that year. Consumption in the nonresidential sector is expected to decline 22.2 percent in 2009 and the public sector will see 6.6 percent declines in 2009 and 2010.

“The nonresidential construction market typically takes 18 months from the onset of better economic conditions to rebound,” Sullivan said. “With weak consumer spending, this sector will be especially hit hard in retail construction.”
PCA predicts a recovery to begin in 2011 with a 10.3 percent increase compared to 2010 consumption and a return to near-record consumption levels by 2013. Your comment?

Owens comments on future

Caterpillar's Chairman and CEO Jim Owens recently commented on the company's financial performance expectations for the future: "The 2009 economic outlook is extremely uncertain at this time, with substantial turmoil in financial markets and unprecedented government intervention around the world," Owens said. "Our current outlook for 2009 calls for sales and revenues to be about flat with our full-year 2008 results. In 2009 we expect pockets of strength in global mining, energy markets and in the area of emerging market infrastructure development to offset acute weakness in North America, Europe and Japan. Further, we are confident that our integrated service businesses, which have grown significantly this year, will offer revenue and earnings support in the coming year. That said, given the recent economic turmoil, we will issue our 2009 profit per share outlook with our year-end release in January. The world has experienced significant turbulence in financial markets, and we expect this will slow world economic growth over the next three or four quarters. While we are encouraged by the coordinated response by governments and central banks around the world and believe the actions they've taken will restore global liquidity, the depth and duration of economic decline and the timing and strength of the recovery are very uncertain. Caterpillar is prepared for volatility, and we remain very positive about our longer-term growth prospects. With our financial strength, global manufacturing and distribution network, our focus on the Caterpillar Production System powered by 6 Sigma and our diversified business portfolio, Caterpillar is poised to strengthen its global leadership position during this challenging period," Owens added.

2009 construction forecast

McGraw-Hill Construction, part of The McGraw-Hill Companies released its 2009 Construction Outlook, which forecasts a drop in overall U.S. construction starts for next year, as the tough funding environment continues, construction projects are deferred, and financial stress gradually eases. Against this backdrop, the level of construction starts in 2009 is expected to decline 7 percent, to $515 billion, following a 12 percent decline predicted for 2008.

“The speed and scope of the events in September and October were startling,” said Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction, addressing 400 construction executives and professionals at the Outlook 2009 Executive Conference in Washington. “Tighter lending standards are a major constraint for the construction industry. For single family housing, declines are continuing and showing no sign of an upturn. Home prices are continuing to drop, a 20 percent drop so far this year, and we expect another 10 percent decline through the first half of 2009. Then, things should level off. Store construction has taken the biggest hit; we’re looking at a 30 percent decline in retail square footage starts this year.”

Highlights of the 2009 Construction Outlook include:

* Single family housing for 2009 will be down 2 percent in dollars, corresponding to a 4 percent drop in the number of units to 560,000 (McGraw-Hill Construction basis).

* Multifamily housing will retreat 6 percent in dollars and 8 percent in units, after the sharp plunge witnessed during 2008.

* Commercial buildings will drop 12 percent in dollars and 15 percent in sq. ft., similar to the declines experienced in 2008. Stores and warehouses will continue to lose momentum, the office correction will be steeper, and hotel construction will finally pull back after its lengthy boom.

* Institutional buildings will slip 3 percent in dollars and 6 percent in sq. ft., as the financial crisis affects funding coming from states and localities.

* Manufacturing buildings will plunge 32 percent in dollars after an exceptional 2008 that was lifted by the start of several massive oil refinery expansion projects.

* Public works construction will fall 5 percent, given flat funding at the federal level combined with restraint by state and local governments.

* Electric utility construction will retreat 30 percent after surging 55 percent to a near record amount in 2008.