The shape of the industry should be familiar to anyone paying attention to the news in recent weeks and months. The economy in general walked off a cliff this year, led by the mortgage market. Lenders gave adjustable-rate mortgages to people who could only hope the rate would never adjust up. The lender did not have to worry about whether the homeowner could pay the mortgage, because they immediately sold the mortgage to someone else, got their money and washed their hands of the matter. When the interest rates did adjust up, the homeowners could not pay and were forced into default.
Lenders overreacted to mortgage defaults by curtailing lending . . . not just to home buyers but also to other borrowers, such as businesses wanting to buy equipment. Without buyers for new housing, the businesses that depend on homebuilding shrivel.
When consumers spend money, the American economy may stumble, but it picks itself up again. When consumers cut back, in other words, when they shrug the economic burden off their shoulders, the economy folds like a house of cards.
Consumer spending had been the pillar that had propped up the shaky ecomony before. With consumers getting hammered by mortgage lenders, layoffs and the soaring cost of gasoline, they could no longer shoulder the burden.
The Conference Board projected a 1.2% decline in consumer spending in the fourth quarter of 2008 and said in their November economic forecast that consumers may cut back on their spending until the middle of 2009.
The only factor balancing out the drop in consumer spending was the drop in gasoline and other energy prices, the Conference Board said.
The sharp increase in the cost of capital, on the other hand, has caused businesses to scale back or delay projects. The board projected a 6.1% drop in real capital spending by business in the fourth quarter of 2008. Even with a cut in interest rates by the Federal Reserve Board, the Conference Board said it will be the second half of 2009 before capital spending rebounds.
The Conference Board’s projections did not factor in the effect of a possible federal economic stimulus package. Indications are that there may be someone in the White House in 2009 who believes in investing in transportation infrastructure . . . maybe even boosting it to the amount needed to maintain the transportation system in its current state.
Readiness is all
In a Dec. 6 radio address, President-elect Barack Obama laid out his economic recovery plan, part of which concerned infrastructure. He said we need to “make the single largest new investment in our national infrastructure since President Eisenhower established the Interstate Highway System in the 1950s—creating millions of jobs and compelling states to act quickly and make smart investments.”
The transportation construction industry certainly is hoping for the best. As much as $73 billion in 11,391 infrastructure projects could be started quickly, the U.S. Conference of Mayors said in mid-November, if they received federal funds. The American Association of State Highway & Transportation Officials (AASHTO) said in early December that more than 5,000 “ready-to-go” transportation infrastructure projects worth $64 billion could be under contract within six months if Congress includes them in an economic stimulus bill. They would support an estimated 1.8 million American jobs.
“President-elect Barack Obama is pledging to put millions of Americans to work by building and repairing the nation’s highways and bridges, and our new survey of state ‘ready-to-go’ transportation projects is the road map he needs to make it happen,” said John Horsley, executive director of AASHTO.
“Right now, 41 states are facing budget shortfalls and many of our state departments of transportation have had no choice but to delay critical projects that will fill potholes, enhance safety and extend the life span of the nation’s aging bridges,” Horsley added.
Adding 1.8 million construction jobs would roughly compensate for the 1.87 million nonfarm jobs the Bureau of Labor Statistics (BLS) said were lost in the 12 months ending in October. The construction segment of the economy, according to the BLS, accounted for 568,000 of those jobs lost over 12 months and 82,000 jobs lost just in October.
At the time of this writing, no further economic stimulus legislation had been passed, but President-elect Obama was hopeful a package could be ready soon after his inauguration this month.
Separate from the issue of short-term economic stimulus and projects ready to go is the issue of the next six-year transportation authorization bill. The Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) expires on Sept. 30, 2009. Prospects for working out a replacement for it before its expiration date are slim to none.
The various industry associations have their own proposals as far as the SAFETEA-LU reauthorization.
AASHTO, for example, has proposed that we need to invest in the national freight network to stay globally competitive and that we need to deal with global climate change. The association thinks the federal, state and local governments need to invest $225 billion per year in highways, transit and rail to meet the country’s needs, but we are currently spending only 40% of that level.
For metropolitan and rural mobility, AASHTO would preserve the current system but doule transit ridership by 2030, employ advanced intelligent transportation systems to improve operations, fix bottlenecks by adding highway capacity in urban areas, connect rural communities to opprotunities and reduce highway fatalities.
10% solution
Reducing highway fatalities is the central focus of the proposal from the American Traffic Safety Services Association (ATSSA). The organization has set a goal of zero deaths on America’s roadways and assembled a transportation reauthorization proposal centered around reducing roadway fatalities every year until the goal of zero deaths is reached.
For the past 10 years, an average of 42,642 people have died every year on U.S. roadways, according to the AAA Foundation, the equivalent of 81 Boeing 747 aircraft.
ATSSA said that was unacceptable and set out 37 specific legislative recommmendations, and recommended that the government increase spending for safety programs to 10% of the total highway funding.
“We’re going to push Congress to allocate 10% of the highway bill specifically to safety, which is approximately three times larger than that percentage is today,” Tom McSwain, president and chief executive officer (CEO) of Inovative Performance Systems in Research Triangle Park, N.C., and a past president of ATSSA, told Roads & Bridges. “That is a huge, huge effort to save lives. And it will. We’ve seen that in deaths from ’06 to ’07. We’ve seen what happens when safety infrastructure is funded and funded well, and that’s going to be the biggest push.”
ATSSA gathered almost 70 of its members in Washington, D.C., in September to talk to members of Congress about transportation safety.
Another point high on ATSSA’s agenda was making sure that safety money is used for safety.
“The funding for the Highway Safety Improvement Plan should be reserved exclusively for saving lives and not transferable,” Robert “Bubba” Lee, CEO of Vulcan Inc., Foley, Ala., told Roads & Bridges.
ATSSA also wants funding for the High Risk Rural Roads program increased to $1 billion. It currently stands at only $90 million a year, but about 60% of all road fatalities occur on rural roads.
Dane Alsabrook, government relations director at Ennis Paint, Ennis, Texas, emphasized that ATSSA was looking for low-cost, high-benefit safety improvements.
“Regardless of what the cost of these solutions are,” he told Roads & Bridges, “the benefit that comes from saving lives and reducing crashes is astronomical compared to other ways that transportation funds are used.”
Feeling flat
In the construction equipment industry, manufacturers expect continued business declines of 8.6% in the U.S. through the end of 2008, followed by flat growth in 2009 of 0.04%, according to the annual “outlook” survey of the Association of Equipment Manufacturers (AEM).
Each year, AEM surveys its construction equipment manufacturer members about expected sales of construction machines in 72 different whole-machine product types and 19 types of attachments and components, grouped into seven broad categories: earthmoving, lifting, bituminous, concrete and aggregate, light equipment, attachments and components, and miscellaneous equipment.
“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.,” stated AEM President Dennis Slater.
“Our aging roads, bridges and highways need repair and upgrades,” Slater said. “Committing funds to infrastructure renewal not only provides manufacturing and construction jobs, but also helps ensure we have safe and efficient movement of goods and people. An adequate transportation network is essential to commerce and maintaining U.S. competitiveness in global markets.
“The rental market is a significant source of business for equipment manufacturers. After a few years of solid growth, this segment is undergoing a correction. Expected cuts in rental company capital spending will adversely affect equipment sales.”
With all the public resistance to increasing the federal gas tax and the immaturity of other revenue generators to take over, the transportation construction industry has a big job to convince Congress to make big increases in highway and transit funding. It should be easy to advocate saving lives, but even ATSSA could face opposition. McSwain stated:
“Even as easy as talking about safety is and saving lives is—we may have some champions in the House and Senate—but if we are not able to help in the process of finding alternative funding, our chances of success are going to be tough.”
