CONTRACTORS Unemployment was the most pressing issue in the recent elections, and unemployment multiplied by a factor of two is the most pressing issue in the road-and-bridge construction business, second only maybe to the lack of a long-term federal highway bill.
The construction industry’s unemployment rate rose to 17.3% in October, almost double the national overall unemployment rate, according to an analysis by the Associated General Contractors of America (AGC). The small silver lining in the dark cloud was that temporary federal programs like the stimulus were driving demand for construction workers in the heavy and civil construction fields. While the stimulus has helped protect the construction industry from more severe job losses, AGC said, construction companies were unlikely to significantly expand payrolls until the long-term market outlook improves.
The Association of Equipment Manufacturers (AEM) also recognized the importance of employment when it released a statement on the day after the elections calling for the new Congress to take action to add jobs to the economy.
“The urgency to stimulate job growth is as great today as it was before the election,” said the statement by AEM President Dennis Slater, “and the new Congress should focus on issues where there is bipartisan agreement to show immediate progress in 2011. Specifically, generating economic activity by rebuilding and modernizing America’s infrastructure is an issue both Republicans and Democrats—and American voters—agree on. Our elected legislators can take the first step towards creating jobs via infrastructure investment by passing the highway bill—a bill which has been stalled in Congress since September 2009.”
Highway construction in September was unchanged from August, according to McGraw-Hill Construction, while bridge construction edged up 2% with the help of a $182 million bridge rehabilitation project in Brooklyn, New York. The stimulus bill helped keep contractors operating but not by much. Sixty-four percent of the contractors who responded to Roads & Bridges’ survey said they received less than 10% of their company’s 2010 revenue from the stimulus bill. For 76% of the contractors who responded, less than 25% of their revenue came from stimulus money.
Prospects gloomy
Next year looks worse not better. Only 40% of contractors said they expected to receive stimulus money in 2011.
The vast majority (87%) of those contractors said the current economic conditions for road and bridge construction in their state were fair or poor. They said the outlook for 2011 was no better: 48% fair, 40% poor. The most likely time for a recovery, among this pessimistic crowd, was not until 2013 (35%). Thirty percent said they thought 2012 would bring a recovery. The rest thought the recovery would not arrive until 2014 (19%) or 2015 (17%).
“I see a pretty flat market and actually maybe even a slightly declining market in 2011,” Brian Deery, senior director, Highway & Transportation Division, AGC, told Roads & Bridges. “The stimulus money, which has been a big factor in the market over the last two years, is basically starting to run out.”
One small bright spot in the economy is exports of U.S. construction machinery. Total construction machinery exports at midyear were $7.4 billion, according to AEM, a 15% gain over the first half of 2009.
“These numbers are encouraging, especially after the double-digit declines of last year,” said Al Cervero, AEM’s senior vice president. “With U.S. markets still sluggish, they underscore the importance of global trade to the construction equipment industry. Export business helps U.S. manufacturers keep their doors open, and Congress can help create more jobs by passing free trade agreements still pending with Colombia, Panama and Korea. We also need to rebuild our crumbling infrastructure to get products to market more efficiently.”
The top destinations for U.S. construction machinery exports during January to June 2010 were Canada ($2.4 billion, up 32%); Australia ($625 million, up 32%); Mexico ($549 million, up 8%); Chile ($462 million, up 9%); and Brazil ($376 million, up 74%).
U.S. sales of construction equipment probably will not be as bright over the next year: Only 43% of Roads & Bridges’ contractor readers said they planned to buy new construction equipment in 2011.
“Most contractors aren’t in the equipment-buying mood right now,” said Deery. “With the market down so far and, particularly in the highway area, with no certainty about future funding, contractors aren’t making a whole lot of equipment investments.”
Material market
At least supplies of cement for construction jobs should be steady in 2011. In 2010, the Portland Cement Association (PCA) expects only about 0.3% growth in consumption of cement. Although this will be followed by small increases of 1.4% in 2011 and 4% in 2012, a period of sustained growth is not likely until 2013 and beyond, according to PCA’s forecast.
“Unfortunately, future gains in construction activity are dictated by labor conditions today,” Edward Sullivan, PCA’s chief economist, said in a statement. “Slow job growth leads to slower home purchases and start activity, it undermines the speed at which state deficits can heal, impacting public construction, and implies low occupancy rates for the nonresidential market.”
Prices of cement and other construction materials are likely to increase next year, according to Roads & Bridges’ survey. Roughly 57% of our respondents thought cement would increase in price in 2011. Our survey was not detailed enough to determine why respondents thought cement prices would increase.
Sullivan was surprised at that opinion. He told Roads & Bridges, “Right now we have a number of plants that are shut down. What we’re seeing is that demand itself is not really going to increase substantially next year, and that means depressed operating conditions remain in place. If depressed operating conditions remain in place, you don’t reopen plants. So my guess is that supply conditions that we face next year will be very similar to those we faced this year.”
AGC’s Deery concurred: “[Material prices] have been relatively stable the past couple of years, and we don’t anticipate them really jumping up, because as with all things, it’s a matter of supply and demand, and the demand frankly isn’t there right now to drive the costs up.”
Maybe the Roads & Bridges survey was just highlighting an overall impression that construction materials are getting more expensive, or perhaps the attitude is a reflection of worldwide demand, which is expected to increase following China’s re-emergence. Prices for materials used in construction jumped 0.6% in October and 4.8% over the previous 12 months, according to AGC’s analysis of October’s Producer Price Index figures. The price of diesel fuel was up 7.2% since September and 20% since October 2009. The price of steel-mill products was up 1.4% since September and 12% over the previous 12 months. And prices for asphalt paving mixtures and blocks dropped 0.5% in October but were still 4.8% higher than the year before. One material that has fared pretty well is concrete, the price of which was unchanged from September 2010 and down 0.4% from October 2009, according to AGC.
The other materials most likely to increase in cost, according to the Roads & Bridges survey, are asphalt and steel, while rebar, aggregate and pavement markings received fewer votes to gain cost.
DOT OFFICIALS
Not even government agencies are immune to the stagnant economy. Many state departments of transportation are struggling or treading water, and while there are exceptions, few see 2011 as being a key turnaround year.
According to a Roads & Bridges survey of government officials, the vast majority—90%—described their state’s current funding for roads and bridges as fair at best. More than half—53%—said the economic conditions were poor. The forecast is not much brighter when it comes to DOT employment. Only 7% of those surveyed said their DOT plans to add employees in the coming year, while a quarter predict cutting staff.
While most do not forsee 2011 being a particularly good year, the jury is still out on when a recovery will finally happen. Few think it will start as early as 2012, but almost equal numbers of officials predicted it would take place in 2013, 2014 or 2015. And despite the overwhelming construction and maintenance needs, almost half say their highway budget will shrink in 2011. One exception is the Texas Department of Transportation (TxDOT). While many states may be struggling, Kelli Petras, a spokeswoman at TxDOT, said that a number of factors should actually make 2011 a year of growth. Thanks to two key bond programs, TxDOT’s budget should be almost $900 million higher than it was in 2010.
That money will be used to fund continued construction on several major highway revitalization projects. Many, such as the LBJ Express Project along I-635 in Dallas, are adding managed toll lanes. As part of that project, the existing lanes will be improved and repaved. Additionally, crews will add lanes to State Highway 130, which roughly parallels I-35.
The current economic situation has also played in TxDOT’s favor, since inflation has not had a negative effect on the department’s budget.
“We’ve actually been experiencing deflation on the highway cost index, which is why the majority of our projects have been coming in under budget,” Petras told Roads & Bridges. As the country moves out of the recession, she expects that to change, but for now, she said prices have either gone down slightly or remained pretty stable.
However, problems could start to emerge after 2011. ARRA revitalized TxDOT in 2010, and the bond programs mean 2011 should be a strong year. But TxDOT has no clear sources of funding for 2012. Work on current projects will continue, but the agency is hesitant to begin any new construction.
“If we don’t know how we’re going to be funded, if we don’t have money secured for the future, it’s going to be really hard to start any new projects now,” Petras said.
That creates the additional challenge of balancing desired new construction with needed maintenance. Petras said new projects can sometimes be a risk, especially when funding is not guaranteed. Rather than pouring money into the design and preparation of a project that never gets off the ground, TxDOT could opt for maintaining and extending the life of the existing infrastructure.
Also, the state legislature has asked the agency to hold off on several of the tools it uses to secure funding, such as public-private partnerships. Despite the state’s budget problems, Caltrans, the DOT for California, expects 2011 to be a fairly healthy year. Roughly, active projects should create a contract value of about $9.5 billion. However, Norma Ortega, the chief financial officer of Caltrans, noted that compared with the previous fiscal year, the workload most likely will decrease.
ARRA funds did boost the state’s construction capacity, but California’s massive budget deficits mean Caltrans’ budget will not get any bigger.
“I think in the near term, it’s going to be difficult to see much of an increase in revenues for transportation,” Ortega told Roads & Bridges.
In 2006, voters approved a bond proposition worth nearly $20 billion, but Rick Land, Caltrans’ chief engineer, said the stagnant economy is taking its toll.
“Over the last few months the ability to sell bonds has not kept up with the ability to deliver projects that are ready to go to construction,” Land told Roads & Bridges.
Most of Caltrans’ revenues come from the state fuel tax, and over the past four years Ortega said fuel consumption has decreased almost 7%. That, combined with the deficit situation and a massive needs-to-means gap, has created a situation that is murky, at best. However, the agency does have several key projects that are going forward in 2011.
The $500 million Presidio Parkway Project, which links San Francisco to the Golden Gate Bridge, will fix areas of the roadway that are seismically deficient. Also, Caltrans will work with the Port of Long Beach to begin replacing the Gerald Desmond Bridge, which connects the Long Beach area with California’s highway system. Several managed-lane projects are expected to wrap up along I-15 in San Diego in 2011 as well.
In contrast, the New Jersey Department of Transportation (NJDOT) is in an extremely tenuous position for the coming year. Joe Dee, a spokesman at NJDOT, told Roads & Bridges that construction on several projects that are already under way will continue into FY 2011. But since the state’s transportation trust fund has not yet been renewed, the department has no idea what the next fiscal year will bring. He said an announcement about the trust fund is expected by the end of the year.
Despite the president’s calls for a new transportation bill, most state DOTs are not expecting one to get passed anytime soon. Having a secure federal source of funding would allow states to move forward with numerous important projects. But as Petras noted, the likelihood seems more and more remote. “While that’s on all of our wish lists,” she said, “we’re not really anticipating it.”
ENGINEERS
What has followed the shot in the arm is a sore spot with many in the road and bridge industry.
The American Recovery & Reinvestment Act (ARRA) injected $48 billion of fast-acting relief into the transportation market. However, the effects are now wearing off, and as engineers look ahead to 2011 many are focusing their attention on the continued inactivity of the Obama administration and Congress to pass a long-term highway bill. Over the next 12 months, frustration could return as a common symptom.
“There doesn’t seem to be much of an agreement at the national level about infrastructure,” Pete Rahn, CEO of HNTB Corp., told Roads & Bridges. “At least they are talking about it, but it doesn’t seem to me that the stars are aligned yet to take action.”
When forecasting the upcoming year, engineering firms like HNTB look at resources clients are anticipating, which appear to be lacking in nourishment heading into 2011, and according to Rahn will make for an extremely competitive environment. Due to the latest extension of SAFETEA-LU, lawmakers in Washington had not enacted any appropriation bills for FY 2011, which began on Oct. 1, leaving the states with just over $18 billion in federal funds.
“There is going to be more providers of services than demand,” said Rahn.
It appears that demand will be flat, and a recent Roads & Bridges survey indicates the industry is bracing with conservatism.
When transportation engineers were asked if they were planning on adding, reducing or maintaining their current level of employees in 2011, 69% said current levels would not change, and over half believe the economic conditions over the next year will be fair. In a stark contrast, only 13% said conditions would be good in 2011. The revival, however, might be right around the corner. Of those who rated 2011 activity to be fair or poor, over 70% believed an upturn could be expected over the next two years.
“I do not see that 2011 is going to be any different than what we saw in 2010,” said Rahn. “I don’t see the activities out there that signals a recovery.”
The American Society of Civil Engineering (ASCE) is still holding out hope that the next year will mark the beginning of a revival. The association sees civil engineering as a whole looking to hire more in 2011, but on the transportation side that optimism hinges on federal, state and local funding. At press time, outgoing House Transportation and Infrastructure Chairman Jim Oberstar (D-Minn.) was encouraging a one-year extension of SAFETEA-LU, while new T&I chief John Mica (R-Fla.) was pushing for a six-month extension. Sen. Barbara Boxer (D-Calif.), who chairs the Environment and Public Works Committee, also was preparing plans for a six-month funding patch.
However, in order to arm for a tougher battle in terms of the competition that Rahn predicted, more design firms are looking to bulk up their expertise to gain an edge, which could translate into more hires.
“They are also spending to get up to speed on issues of sustainability and resiliency, and that could make them more competitive,” Kathy Caldwell, president of ASCE, told Roads & Bridges. “I did attend a very large career fair in Orlando . . . it was very encouraging.”
Although most signs point to a stressed road and bridge network, engineers are not ready to pull the panic alarm. When asked to rate the condition of urban and rural roads, most went with fair (urban, 56%; rural, 55%), and 54% said their interstate system was in good shape, while 36% marked it as average.
Some would argue that those results reflect the effective coverage of ARRA dollars, but according to Dr. David Hartgen roads across the country are in the best shape they have been in 19 years. He co-authored the Reason Foundation’s 19th Annual Highway Report, which was released in September 2010. The study takes the following variables into account: deficient bridges, urban traffic congestion, fatality rates, pavement condition on rural and urban interstates as well as on major urban roads, and the number of unsafe narrow lanes. Hartgen believes the recent recession played a major factor in the strong showing because motorists were putting less miles on the system. However, with the infusion of stimulus dollars he is already predicting that the 20th annual report will be even better.
“I have looked at it more carefully and it turns out even the lower systems, the local systems, we have made progress there, too,” Hartgen told Roads & Bridges. “But the gap between the upper systems and lower systems is clearly widening.”
Hartgen also warned of serious belt-tightening in terms of funding. “I would characterize it as a two-hole equivalent on your belt.”
Engineers might receive some solace in the funding attention directed at the high-speed rail sector of the transportation industry. In early November, Transportation Secretary Ray LaHood announced another $2.4 billion had been given to 54 high-speed rail projects across the country.
Word out of Washington is that Congress also could finally reauthorize the Airport Improvement Program. “Airports could be a place where you see some activity,” said Rahn.
However, the rest of the marketplace, which includes roads, bridges and transit, may hit a wall in 2011 if a long-term highway bill is not enacted.
