Highway construction work dropped sharply in June and July, wiping out market gains from the previous seven months amid uncertainty over the federal aid highway program and the Highway Trust Fund, according to the American Road & Transportation Builders Association. The decline can be specifically attributed to longterm congressional inaction on deficiencies in the Highway Trust Fund, and Congress’s inability to agree on a new highway bill. President Obama has signed a $10.8 billion temporary measure that will fund highway and bridge repairs for the next 10 months, however that is not enough to give the highway construction market the long-term confidence it needs.
Highway construction had been showing some gains in early 2014, but the recent decline means that contractors have performed $17.8 billion in pavement work through the first half of 2014, compared to $17.4 billion in the first six months of 2013.
“The point here is simple: There are real, substantial costs associated with Congress’s inability to pass a long-term highway bill,” said Michael O’Brien, public affairs manager, Association of Equipment Manufacturers. “Lawmakers’ prolonged struggle to rally even around a short-term patch to the Highway Trust Fund leeched millions from the economy in June, and it’s not as though the measure Congress passed at the end of last month added tremendous certainty to highway construction projects.”
The American Concrete Pavement Association (ACPA) recently called out Congress on its inability to function. Commenting on the recent 10-month patch to the Highway Trust Fund, Gerald F. Voigt, president and chief executive of the association, said, “Although this measure avoids drastic cuts that would have adversely affected our industry, state agencies/ owners, and others in the transportation-construction community, we remain very concerned about finding long-term solutions to address the Highway Trust Fund (HTF) issue and the critical needs of our nation’s highways. We urge Congress and the Administration to work on addressing the HTF situation, as well as to support long-term legislation that allows companies to invest in the future and agencies to adequately plan for the current and future needs of our highways.”
Voigt explained that more than a decade’s worth of short-term legislation and temporary fixes to the Highway Trust Fund have impeded the ability of many state agencies and private companies to make capital investments, to plan ahead, and to invest in the technologies necessary to remain competitive in the marketplace.
New Starts are Up New construction starts in July climbed 6 percent to a seasonally adjusted annual rate of $588.8 billion, according to McGraw Hill Construction, a division of McGraw Hill Financial. Nonresidential building continued to advance, supported by yet another robust month for manufacturing plant projects as well as improvement for commercial building.
The nonbuilding construction sector (public works and electric utilities) also advanced, helped by the start of a very large mass transit rail project. At the same time, residential building was unchanged from its pace in June. Highway work declined an alarming 11 percent, while bridge work slid 21 percent. “The construction expansion this year is getting more of a contribution from nonresidential building,” stated Robert A. Murray, chief economist and vice president for McGraw Hill Construction.
“Manufacturing plant construction is seeing the start of numerous chemical and energy-related projects, consistent with the nation’s growing energy sector. Commercial building is maintaining its upward momentum from low levels, while institutional building with its up-and-down pattern appears to be stabilizing after a lengthy decline. With residential building being limited so far in 2014 by the sluggish single-family market, the further growth for nonresidential building has been needed to keep the construction expansion going. As for public works, this year’s pullback has stayed moderate, helped in part by the ongoing strength for mass transit work. The recent passage of a $10.8 billion ‘patch’ by Congress to shore up the Highway Trust Fund through May 2015 should also help to keep this year’s public works downturn from getting much more severe.”
Nonresidential building in July increased 7 percent to $229.0 billion (annual rate), showing further growth on top of the 12 percent increase reported in June. The manufacturing plant category jumped 44 percent, rejecting the start of still more chemical and energyrelated facilities, including these projects in Texas – a $3.0 billion petrochemical plant in Baytown and a $1.7 billion ethylene plant in Freeport.
Other large manufacturing projects entered as July starts included a $450 million semiconductor facility in Hillsboro, Ore., and a $370 million ore processing plant in Corpus Christi, Texas. The commercial building group in July rose 11 percent, resuming its upward trend after retreating in June.
Hotel construction in July climbed 29 percent, helped by groundbreaking for a $190 million hotel/time share tower in Honolulu and $114 million for the hotel portion of a $300 million mixed-use building in Los Angeles. Store construction improved 12 percent, aided by the start of a $49 million mall addition in Denver.
Office construction grew 8 percent, supported by $252 million for the office portion of a $420 million mixed-use building in Minneapolis and $170 million for the office portion of a $225 mixed-use building in Dallas. Warehouse construction was the one commercial project type not able to report a July gain, as it slipped 13 percent.
The institutional building group as a whole dropped 14 percent in July, retreating after growing 12 percent during the previous two months. Healthcare facilities fell 34 percent from its heightened June amount, which featured the start of a $900 million hospital campus in San Francisco.
In contrast, educational building in July advanced 11 percent, supported by groundbreaking for such projects as a $130 million addition and renovation to a high school in Winchester, Mass., a $94 million new high school in Centerton, Ariz., and an $86 million new high school in Laramie, Wyo.
Residential building, at $223.4 billion (annual rate) in July, held basically even with its June pace. Singlefamily housing slipped 3 percent, rejecting this performance by major region – the West, down 10 percent; the Northeast and South Central, each down 3 percent; the Midwest, unchanged, and the South Atlantic, up 1 percent. Since the end of 2013, singlefamily housing has been essentially flat, placing the strong upward movement that was reported during 2012 and most of 2013 on hold.
Murray indicated, “One explanation for the sluggish single family market is that investor demand has waned, and first-time homebuyers have been unable to fill the gap, given continued tight bank lending standards. On a positive note, the most recent survey of bank lending officers conducted by the Federal Reserve shows that 18 percent of the respondents had eased lending standards on residential mortgages during the second quarter, which along with continued low mortgage rates may help housing demand and construction to strengthen in the latter half of this year.”
Multifamily housing in July increased 8 percent, maintaining the moderate upward trend that’s been present during 2014. Large multifamily projects that supported the July increase included a $350 million multifamily tower in Queens, NY, a $260 million condominium tower in Honolulu, and $160 million for the multifamily portion of the $300 million mixed-use building in Los Angeles.
Nonbuilding construction in July climbed 14 percent to $136.4 billion (annual rate). While most of the public works categories showed decreased activity during July, miscellaneous public works (which includes site work, mass transit, and pipelines) soared 103 percent.
The lift came mostly from the $1.2 billion related to the start of Phase 2 of the Dulles Corridor MetroRail project in Herndon, Va. In general, mass transit rail work has stayed strong during 2014, registering a 61 percent year-to-date gain for the nation as a whole.
Highways and bridges moved in the downward direction during July, sliding 11 percent and 21 percent, respectively. The environmental public works categories showed a moderate loss of momentum in July, with river/harbor development and water supply systems each down 7 percent, while sewer construction fell 9 percent.
The electric utility and gas plant category in July jumped 55 percent, as part of its occasional departure from the downward trend reported over the past year. Large projects in July that boosted the electric utility and gas plant total included a $1.5 billion natural gas liquid fractionator facility in Texas and $500 million for electrical system upgrades to the East Side Access Tunnel project in New York.