Spurred by continued increases in federal funding and renewed economic growth, the U.S. highway construction market should grow 4.5% in 2005, according to the chief economist for the American Road & Transportation Builders Association (ARTBA). The real question, however, is how rising construction costs will absorb much of the growth.
The value of construction work performed on highway and bridge projects should be a record $69 billion in FY 2005, up from $66 billion in FY 2004, according to ARTBA.
ARTBA Vice President of Economics & Research William Buechner released a report yesterday at a seminar in New York City for Wall Street analysts. He said several factors should help support market growth next year:
State and local budgets are improving
General state tax revenues are rebounding. Economic growth is the best indicator of state and local funding for highway and bridge construction, Buechner said. The Bush Administration's August budget update predicts the economy will grow about 5.5% annually in current dollars between now and 2009. That should provide a solid base for more state and local government investment in highway construction in 2005 and beyond;
State and local DOTs will have more federal highway aid available in FY 2005 than FY 2004
Congress has signaled its intention to appropriate a record $34.6 billion for federal highway investment in FY 2005. On Sept. 30, Congress also voted to shift $1.9 billion of FY 2004 highway funding into FY 2005. The result was to reduce FY 2004 funding of $33.6 billion to $31.7 billion and increase FY 2005 to $36.5 billion. The effective year-to-year increase would thus be $4.8 billion, ARTBA said; and
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The law that funds highway and transit programs was extended eight months through May 31, 2005, and should give state and local DOTs more predictability and firmer footing for highway design and letting programs in 2005, according to Buechner. A new law reforming the tax treatment for the sale of ethanol motor fuels should also yield an additional $4 billion in Highway Trust Fund revenues annually.
Buechner cautioned higher construction costs caused by dramatic increases in steel, cement and petroleum prices could impact the overall level of growth in 2005. The factors that generated strong cost increases this year, such as the weakening dollar and growing demand for construction materials in China, were unanticipated and are likely here to say, according to ARTBA. If steel, cement and other materials stabilize at their current levels, the cost of highway construction in 2005 would be about 2% higher than in 2004, which Buechner said would absorb about half of the investment increase. If prices continue to rise at their current rate, they will likely consume most of the projected increase in the value of highway construction market next year.
