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ABC Predicts Modest Growth for 2017 Nonresidential Construction Sector; Warns of Vulnerability for Contractors

Associated Builders and Contractors (ABC) forecasts a slowdown of growth in the U.S. commercial and industrial construction industries in 2017. While contractors are vulnerable to rising commodity prices and potential interest rate increases in 2017, the middling consumer-led recovery should still lead to modest growth in construction spending and employment.

“The U.S. economy continues to expand amid a weak global economy and, despite risks to the construction industry, nonresidential spending should expand 3.5 percent in 2017,” said ABC Chief Economist Anirban Basu. “For more than two years, the Federal Reserve has been able to focus heavily on stimulating economic growth and moving the nation toward full employment. However, as commodity prices, including energy prices, firm up and labor costs march higher, the Federal Reserve will need to be more concerned about rising inflation expectations going forward. Associated increases in interest rates could have significantly negative impacts on certain asset prices, including stocks, bonds, commercial real estate and apartment buildings.

“Contractors also should be prepared for increases in commodity prices, which could translate into further stagnation in construction spending volumes if the purchasers of construction services are not prepared for related cost increases,” warned Basu. “Additionally, data from the U.S. Bureau of Labor Statistics indicate that construction job openings stand at a 10-year high and that average hourly earnings for construction workers rose above $28 per hour in 2016. The demand for construction workers is positioned to remain high and is likely to increase already significant wage pressures.

“However, there is a bullish scenario,” said Basu. “According to the Bureau of Economic Analysis, the average age of all fixed assets, including structures such as factories and hospitals, stands at 23 years—the oldest on record tracing back to 1925—and there is a collective awareness among American enterprises that they will need to replace much of their capital stock in future years. In addition, now rising energy prices could produce more investment and rising earnings—potentially translating into better support for asset prices, ongoing hiring and consumer spending.

“Despite some headwinds, many construction firms continue to report that they remain busy and ABC’s most recent Construction Confidence Index revealed that while construction firm leaders are not quite as confident as they were in prior quarters, most continue to expect growth in sales, margins and staffing levels,” concluded Basu.

Basu’s full forecast is available in the December issue of ABC’s Construction Executive magazine, along with the regional outlook for commercial and industrial construction by Dr. Bernard Markstein, president and chief economist of Markstein Advisors, who conducts state-level economic analysis for ABC.

As 2016 Fades Into History…

Baby & GIt’s been a long year but we survived it. The elections are over and the world is looking ahead to see what emerges and evolves.

As you might expect all the industry associations have published congratulatory statements to president-elect Donald Trump. I have participated in a Wells Fargo webinar that looked at the some of the possibilities we could expect in the coming year under a new administration. The projections are positive especially for our infrastructure.

ASCE – Civil Engineers Urge President-Elect Trump To Fulfill Vow To Invest In America’s Infrastructure

The following is a statement by Norma Jean Mattei, Ph.D., P.E., F. SEI., F. ASCE, president of the American Society of Civil Engineers (ASCE), on the election of Donald J. Trump as the next President of the United States:

“The American Society of Civil Engineers (ASCE) congratulates President-elect Trump upon his election and urges prompt action on his ambitious plan to repair and modernize our nation’s infrastructure and foster economic growth. Infrastructure is the very backbone of our nation’s economy, yet ASCE’s 2013 Report Card for America’s Infrastructure gave the nation’s infrastructure a cumulative grade of ‘D+.’ An economic study we released earlier this year found that the U.S. is on track to invest only half of what is needed in infrastructure over the next decade. A continued failure to act will result in significant consequences for our economy and for American families, who lose $3,400 a year due to aging infrastructure.

“If invested wisely, President-elect Trump’s proposed $1 trillion investment in infrastructure represents an important step toward closing the investment gap to raise the grade and achieve a globally competitive American infrastructure system fit for the 21st century. ASCE and its 150,000 members call on President-elect Trump and the 115th Congress to prioritize infrastructure repair, replacement, and modernization, to improve our economy, public health, and safety, so that every family, community, and business can thrive.”

The American Road & Transportation Builders Association (ARTBA) President & CEO Pete Ruane Statement
on the Election of Donald Trump:

Pete Ruane

Pete Ruane

“President-elect Trump will have a ‘can do’ industry as his partner in rebuilding and expanding the nation’s transportation infrastructure to make it again second to none. Give us the proper resources and the new jobs and innovative solutions will take off.

“Republicans in Congress should heed the call of their party’s leader and make urgently-needed improvements of national infrastructure networks a top priority in early 2017.

“Despite a highly partisan political environment, Republicans and Democrats have routinely worked in a bipartisan manner to support infrastructure legislation.  All sides should view a long-term infrastructure package as an opportunity for the two parties to come together and make meaningful progress for the American people.”

Other industry associations and organizations have published similar statements. The timing couldn’t be better for CONEXPO CON/AGG 2017, Las Vegas, Nevada March 7-11, 2017.

Wells Fargo Reports: Infrastructure Spending and the Fiscal Multiplier

Wells_Fargo_Securities_logoInfrastructure spending is widely known to boost economic activity. However, the fiscal multiplier tends to be much larger during recessions, suggesting the late-cycle lift could be less than originally anticipated.

Infrastructure Fiscal Multiplier Low During Expansions

President-elect Donald Trump has proposed an infrastructure program of $1 trillion over the next 10 years (the Trump transition website notes $550 billion.) The American Society of Civil Indicator Title Engineers (ASCE) reports that the nation’s infrastructure is in “poor” condition and would require an estimated $3.6 trillion by 2020 to maintain a state of “good” repair, with only about half the needed funds committed (top chart).

Although details of the infrastructure program have yet to be published, two of Trump’s advisers provided a proposal in October (Ross, Wilbur and Navarro, Peter, “Trump Versus Clinton on Infrastructure,” Oct. 27, 2016). The plan includes $167 billion in equity investment, which is almost 17 percent of the total package. The equity portion would be supported by a tax credit equal to 82 percent of the equity. The remainder of the plan would be financed by debt. Based on the structure, critics of the plan suggest that investors will have little “skin in the game.” There is also recent talk about an infrastructure bank, which was included in the

While we await the details, discussion has also been centered on the impact to overall economic growth. Academic research finds that infrastructure spending, especially highway funding, has a positive effect on real GDP growth, which can be seen in the first two years and then a larger second- round effect after six to eight years (Leduc and Wilson, 2012). In fact, based on Congressional Budget Office (CBO) estimates, the multiplier for infrastructure spending for the American Recovery Indicator Titleand Reinvestment Act was larger than most other forms of government spending (middle chart). Literature also highlights the correlation between infrastructure spending and productivity growth in the U.S. and suggests that periods of weak public investment explains a good portion of the slow productivity growth (Aschauer, 1988) (bottom chart). These anticipated results are very promising, especially given slow productivity growth and low growth in potential output. However, the direct effect of infrastructure spending will be subject to long lags and will depend on the size of the fiscal multiplier.

A fiscal multiplier is the ratio of how much economic activity will increase for a unit of government spending. Studies show a wide array of multipliers based on a host of factors, with values ranging from 0.5 to 3.5 (Whalen and Reichling, 2015). The multiplier can also vary over the cycle. Research estimates a peak multiplier of 2.5 during recessions and 0.6 in expansions, with the gap due to stimulus crowding out private spending during multiplier for infrastructure spending is slightly less than two over a 10 year period (Leduc and Wilson, 2012), suggesting a $1.00 increase in spending raises output by roughly $2.00. That said, the infrastructure multiplier may be smaller during an expansion.

Source: ASCE, CBO, U.S. Department of Commerce and Wells Fargo Securities

1 Auerbach, Alan and Gorodnichenko, Yuriy. 2012a. “Measuring the Output Responses to Fiscal Policy.” American Economic JournalIndicator Title

ARTBA President & CEO Pete Ruane Statement on Elaine Chao’s Selection as U.S. Secretary of Transportation

fa4ca536-14f6-4df1-83e2-ca3527905984American Road &Transportation Builders Association President & CEO Pete Ruane issued the following statement in reaction to Elaine Chao’s selection as U.S. DOT Secretary:

Pete Ruane

Pete Ruane

“President-elect Trump has made a very good choice in selecting an experienced and proven leader to serve in this key cabinet post.

“As a former deputy secretary of transportation and secretary of labor in the respective Bush Administrations, there will be little learning curve for Elaine Chao. She is already well-versed on federal transportation policy, regulatory and safety matters.

“We look forward to her playing a critical leadership role in fulfilling President-elect Trump’s campaign pledge to make major new strategic investments in America’s transportation infrastructure network.”

Since 1902, ARTBA has been the “consensus voice” of the U.S. transportation design and construction industry before Congress, the White House, federal agencies, news media and the general public.

Voters Want Transportation Investment Record Number of State and Local Ballot Measures Approve

63f04383-b557-424b-936b-696d2d371c0bPreliminary November 8 election results show voters in 22 states approved ballot measures that will provide $201 billion in funding extensions and new revenue for state and local transportation projects.

According to an analysis by the American Road & Transportation Builders Association’s “Transportation Investment Advocacy Center™” (ARTBA-TIAC), 69 percent of the 280 transportation funding ballot measures up for vote across the nation were approved, with results still pending for seven local areas.

California will see the biggest impact. Voters in the state approved 15 of 26 transportation ballot measures worth $133 billion, including a 1 cent sales tax in Los Angeles that will provide $120 billion over 40 years for local road, bridge and transit projects. The California measures had to muster at least a two-thirds “super majority” vote to pass—10 of the measures that failed received over 50 percent of the vote, but did not reach that threshold. California voters also rejected a statewide measure that would have required any public infrastructure bond over $2 billion to go on the ballot for voter approval.

Voters in Illinois and New Jersey passed transportation tax “lockbox” measures to prohibit state lawmakers from diverting transportation user fee revenue to non-transportation uses. Maine approved a statewide transportation bond issue for $100 million and Rhode Island voters approved $70 million in bonds for port investment.

In Washington state, voters approved a 25-year, $54 billion revenue package that would support expanding Sound Transit light rail and bus routes. The package included a bond issue and adjustments in property, sales and motor vehicle taxes.

In Missouri, a statewide initiative to increase the state’s cigarette tax to raise an estimated $100 million annually for transportation investments failed. Voters in Georgia approved local sales tax increases that would raise nearly $4 billion for road and transit projects in the metropolitan Atlanta area.

Earlier this year, voters approved 76 of 81 transportation funding measures—or 93 percent—of initiatives on primary ballots.

Overall, voters approved 74 percent of transportation ballot initiatives in 2016. This is in line with the 10-year average rate of 74 percent. In the last two presidential elections, voters approved 77 percent (2012) and 76 percent (2008) of transportation funding measures.

The complete report and an interactive map showing the state-by-state results can be found at www.transportationinvestment.org.