Stimulus praise

In a statement released by the Associated General Contractors of America, CEO Stephen E. Sandherr praised the stimulus package and its effect on funding projects and putting people back to work. "Our member companies involved in highway and transit construction have been pleased with the speed with which the federal government and its state partners have been able to move in identifying and awarding stimulus-funded projects," Sandherr said. "Indeed, our member companies have consistently cited the transportation program as a model for being able to quickly and effectively fund projects in a way that puts construction workers back to work promptly while restoring America's aging infrastructure. Given the extremely challenging economic environment our contractors are operating in, with significant declines in private-sector construction activity, it is hard to imagine how much worse conditions would be if not for the stimulus. The bottom line is our members are eager and anxious to get to work rebuilding America's economy, and the stimulus is helping them do just that." -- Brian Richesson

AGC lauds economic stimulus bill

Industry experts and association heads are now weighing in on the American Recovery and Reinvestment Act of 2009. “In just a few short weeks President Obama and Congress have created real and meaningful opportunities for unemployed workers and struggling businesses that will counter the effects of the economic downturn," said Stephen Sandherr, chief executive officer of the Associated General Contractors of America. "They understand that significant investments in infrastructure and construction projects can play a vital role in our economic recovery. Millions of construction workers and tens of thousands of construction companies are now ready to lead the way in proving them right.” Your comment?

Simonson says

The last year has been a tough one for many in the construction industry, according to an article published on the ARI website. The next one could be just as difficult, said Ken Simonson, the chief economist for the Associated General Contractors of America. Speaking at a meeting of the group's Middle Tennessee members, Simonson predicted that residential construction will remain slow, that well-performing commercial sectors will turn sour and that costs will keep rising.

Home building, which has been down about 40 percent this year, will not pick up until midway through next year at the earliest, Simonson said. Construction of rental properties, which has remained flat, should also start to fall, as foreclosures and poor condominium deals create a shadow market that will drag down rents.

The housing market will also put a damper on school construction. Declining home values mean fewer tax dollars for improvements and new buildings. Likewise, higher gas prices will mean less driving and less gas tax revenue for highway construction. Meanwhile, lodging, retail and office construction will slow with the weakened economy.

Simonson threw his support behind the White House plan to borrow $700 billion to buy mortgage-backed securities from banks to help cure the ailing U.S. economy. Over the past few months, Simonson has been hearing for the first time from construction companies that credit has dried up. Without better access to loans, the industry will not be able to get back on its feet, he said.

That said, Simonson said the stakes aren't as dire as some believe. The nation remains in a better position to weather a downturn than it was on the eve of the Great Depression nearly 80 years ago. Your comment?

Materials costs predicted to rise again

The Associated General Contractors of America released its fifth Construction Inflation Alert, warning owners, budget setters and contractors to expect larger materials and labor cost increases in 2008 than they have experienced in the past 12 months. "Nonresidential construction has had a banner year so far in 2007 and we've seen spending on nearly every segment increase compared to 2006, despite the plunge in homebuilding," said AGC Chief Economist Kenneth Simonson. "The materials cost surges that plagued the industry in 2004-2006 have slowed dramatically, and labor remains available in most markets. Simonson warned that many observers expect that the end of the calm is coming soon, "The worsening slide in homebuilding and turmoil in the credit markets threaten some types of nonresidential construction. At the same time, some materials costs are beginning to turn up again, and labor costs have started to accelerate." Meanwhile, the nonresidential industry has benefited from greater availability of specialty trade workers who have lately shifted from residential work. Simonson added, "But wages have begun rising more steeply for specialty trade contractors, suggesting that the number of workers suitable to switch is close to exhaustion. In the next several months, the rate of wage increases is likely to reach 5-5.5 percent, up from a recent 4.5 percent gain." Your comment?

Highway construction drops in July

The latest U.S. Census Bureau construction report indicates highway and street construction is slowing, and Ken Simonson, Chief Economist for The Associated General Contractors of America, says that problems with the Highway Trust Fund are looming on the horizon. Highway and street construction, which received a boost in late 2005 and early 2006, was down 0.8 percent in July and is only 5 percent higher year-to-date. Partly, that reflects lower prices for diesel and asphalt, but it also shows states are running short of highway funds as gas tax receipts slow. "Highway spending could drop sharply late next year," Simonson warned. "Last week, the Congressional Budget Office projected a $5 billion deficit in the federal Highway Trust Fund's Highway Account in fiscal year 2009, which begins in just 13 months. Congress will need to bridge that gap in order to keep road spending from plunging." Your comment?

Focus on aging infrastructure

The recent pipeline explosion in New York has once again focused attention on the nation's deteriorating infrastructure. "Our highway system is aging, our cities are choked with congestion, our transit systems are inadequate, our ports function poorly, and our railroads are at capacity," said Stephen E. Sandherr, chief executive officer of the Associated General Contractors of America (AGC) today during a press conference in Washington, D.C. Sandherr commented on the findings of a new vision report released today by AGC and 16 other organizations, aimed at helping the National Surface Transportation Policy and Revenue Study Commission develop recommendations to meet growing future domestic transportation needs. "There is a funding crisis, congestion crisis and safety crisis looming," continued Sandherr. "It's now time to make the tough choices that will carry our nation forward for the next 50 years."

The vision articulated in the document released today points out that the primary objectives of the future transportation system must be to reduce congestion, position the U.S. to remain globally competitive and meet the growing mobility needs of the 21st Century. To achieve this objective the vision document states that the U.S. must preserve and modernize the existing system, improve its performance, and add substantial capacity in highways, transit, rail, airports and seaports. Substantial increased investment will be necessary to achieve these goals.

To take some of the debate over funding increases out of the political arena, among the things the vision calls for is the creation of a highway user rate commission, recommended by AGC's reauthorization task force. This commission would, on a regular basis, set the user rate fees at a level necessary to maintain and improve the transportation system. Sandherr added, "I urge Congress, the Administration and public policy makers nationwide to give these recommendations serious consideration and to make the tough choices necessary to fulfill this transportation vision." Your comment?

Highway Trust Fund in trouble

I wrote about this last year and it's starting to come true: The Highway Trust Fund is in trouble. The Bush administration released its mid-session budget review which updates the data included in the President's budget released in February. The budget estimate released in February forecasted a $700 million Highway Trust Fund (HTF) shortfall in Fiscal Year (FY) 2009. Today's update increases the forecasted shortfall to more than $4 billion dollars in FY 09. "America's transportation system is the heart of our country's economy and to neglect it is a disservice to our nation," said Stephen E. Sandherr, chief executive officer of the Associated General Contractors of America (AGC). "The cuts in FY 2009 from the promised level of $43.4 billion to about $27 billion, would result in a 37 percent reduction in spending on our nation's infrastructure. Neglecting our transportation infrastructure will only make it more difficult for America to compete in the world market." The mid-session review also increased the forecast shortfall to $9 billion in 2010 and to $15 billion in 2011. Your comment?

April spending highlighted

"Total construction spending inched up in April, as nonresidential outlays shook off the plunge in homebuilding and sluggishness in gross domestic product (GDP)," Ken Simonson, Chief Economist for The Associated General Contractors of America (AGC), said. Simonson was commenting on the May 31 construction spending and GDP reports from the Commerce Department.

"Total construction spending eked out a gain of 0.1 percent in April, seasonally adjusted, but fell 2.5 percent for the first four months of 2007 compared to the same period in 2006," Simonson observed. "Over both periods there was a nearly symmetrical split between residential and nonresidential spending. The former fell 0.9 percent for the month and 15 percent year-to-date, while the latter rose 1.1 percent in April and 14 percent year-to-date.

"Even though GDP grew only 0.6 percent net of inflation in the first quarter, many nonresidential construction categories are catching up from past inactivity or building for the long-term. For instance, construction of hotels and resorts, which nearly stopped early in the decade, jumped 4.5 percent in April and 56 percent in the first four months of 2007 combined. Other big year-to-date private-sector gainers included offices, up 32 percent; communication, 19 percent; and hospitals and multi-retail (general merchandise stores, shopping centers and malls), both up 18 percent. I think many of these categories will remain robust through 2007, although retail and office construction are vulnerable to a slowdown.

"Spending in every public category was at least five percent higher in the first four months of 2007 than in the January-April 2006 period," Simonson noted. "The two big public categories--highways and streets, and education--accounted for just over half the public total. Highway construction was 12 percent higher year-to-date, and education was up 8.3 percent. For 2007 as a whole, public construction should remain positive, but higher materials costs are likely to cut into the number of contracts that agencies can award.

"Private residential spending figures were universally negative in April," Simonson commented. "Single-family construction ticked down less than 0.1 percent for the month but was 27 percent lower over the first four months of the year than in the same period of 2006. Multi-family was down 1.8 percent in April, although the year-to-date figure is still up by 1.2 percent. Residential improvements, which Commerce unfortunately does not break out monthly, slipped 2.5 percent for the month, although it's up 15 percent year-to-date. I'm afraid multi-family will continue to weaken, and single-family won't improve until 2008." Your comment?

Construction market loads up

There are signs the construction market is loading up workers to meet coming demand. Construction accounted for nearly one out of three net new jobs in March--56,000 out of 180,000 in the entire nonfarm payroll sector, even though the industry represents less than 6 percent of total employment, according to Ken Simonson, chief economist for The Associated General Contractors of America. "But the real news lies buried deeper," Simonson said. "The three categories of nonresidential construction--nonresidential building, specialty trade contractors, and heavy and civil engineering--have added 3.4 percent to their ranks over the past year. That is more than double the all-industry rate of 1.4 percent. The 146,000 nonresidential construction jobs added in that time outpaces the 125,000, or 3.6 percent, lost in residential building and specialty trades. I expect nonresidential hiring to continue, if companies can find qualified workers. Costs are a significant concern, however, especially for public projects. More worrisome are recent jumps in prices of steel, stainless, copper and diesel fuel. Materials and components are likely to wind up the year at least 6 to 8 percent higher than in December 2006." Your comment?

Highways on the rise

There were a few bright spots in the construction market last month. "Total construction spending rose modestly in February, but that understates the sizzling gains in most categories other than single-family homebuilding," said Ken Simonson, chief economist for The Associated General Contractors of America. Simonson was commenting on the March 30 construction spending report from the Census Bureau. "Total construction spending rose 0.3 percent in February, seasonally adjusted, following two months of decreases," Simonson said. "That masks a 1.5 percent jump in nonresidential spending, a 2.7 percent increase in residential improvements, and no change in new multifamily construction. Those gains outweighed the freeze in new private single-family construction, which tumbled 2.9 percent for its 11th straight decrease. Compared to February 2006, private nonresidential construction was up 16 percent, public construction was 10 percent higher, residential improvements climbed 17 percent, multifamily edged up 2 percent, but new single-family construction was off 28 percent. The two big public categories--highways and streets, and education--accounted for a bit more than half the public total." In February, highway construction was 11 percent higher than a year before, and educational was up 7.6 percent, similar to the 2006 pattern. The next largest public category, transportation facilities, jumped 17 percent. "For the year, public construction should continue to rise, but some contracts will be delayed because materials costs are likely to push bids beyond the level that agencies had budgeted for," said Simonson. Your comment?

Construction Materials PPI

"Construction materials costs are rising faster than producer price reports suggest," said Ken Simonson, Chief Economist for The Associated General Contractors of America (AGC). "Steel is getting especially hot and diesel is adding fuel to the inflation fire." Simonson was commenting on the latest producer price index (PPI) report from the Bureau of Labor Statistics. "This year, as in 2004, price hikes for other materials, such as diesel fuel and asphalt, are going to hit construction especially hard," he said. The retail price of diesel fuel soared 21 cents a gallon in the month since the PPI data was collected, according to weekly surveys by the Energy Information Administration. "Asphalt prices, which jumped 14 percent at the refinery level last month, will soon rise for paving and roofing contractors," Simonson predicted. "Paving asphalt also uses a lot of aggregate, or crushed stone. That PPI jumped 1.9 percent in February and 3.9 percent in the past three months. Road construction will bear the brunt of these increases, because highway and bridge contractors use so much diesel, asphalt, steel for bridges and guardrails, and concrete, which also is rising in price." Your comment?