The real value of transportation construction market activity is expected to grow 5 percent in 2022 as the economy continues to improve and work begins on projects supported by the new law, the Infrastructure and Investment Jobs Act (IIJA), according to the American Road & Transportation Builders Association (ARTBA) Transportation Construction Market Outlook.
This real market growth accounts for expected increases in projects costs, construction materials wages, and inflation. ARTBA expects the total value of transportation-related construction work, as measured by the U.S. Census Bureau Value of Construction Put in Place, to grow from $148.4 billion in 2021 to $155.6 billion in 2022. This includes real increases in:
- Public highway, pavement, and street construction (+5 percent)
- Bridge and tunnel work (+9 percent)
- Port and waterway construction (+6 percent)
- Airport terminal and runway work (+3 percent)
The outlook is mixed for public transportation and rail construction, with growth expected in Amtrak and Class 1 railroad construction activity (+17 percent). The slowdown in subway and light rail work (-10 percent) reflects a significant decline in public transit contract awards in 2021.
An increase in overall construction activity will drive growth in private highway, street, parking lot, and bridge construction work related to residential and commercial projects. State and local government spending on planning and design work, maintenance activity, and right of way purchases is also expected to increase in 2022 and beyond.
The market outlook over the next five years remains strong, as new projects supported by the IIJA get underway and construction activity continues over a multi-year period. Based on a September 2021 analysis by IHS Markit, 43 percent of the new highway funding under the IIJA, and 20 percent of the transit investment increase, will be spent as outlays after 2026.
2021: Market Activity Down Slightly After Record 2020
After a record 2020, the value of transportation construction work is expected to decline 7 percent in 2021, from $159.6 billion to $148.4 billion, with less highway (-4 percent) and bridge work (-2 percent). When adding increases in material prices, inflation, and wages, that real value of transportation construction work is expected to drop 11 percent in 2021, compared to the year before. ARTBA estimates that average project costs, based on various indices from the U.S. Bureau of Labor Statistics, increased 9 percent on average in 2021.
The market slow-down is in part due to the continued impact of the COVID-19 pandemic on state and local finances, budgets, and project plans. While Americans are driving more in 2021 than 2020, vehicle miles traveled on the nation’s roadways are still down about 6 percent compared to pre-pandemic levels, according to the Federal Highway Administration (FHWA).
Additional federal resources for state and local governments and transit authorities, including over $103.8 billion in COVID-19 relief funding across all modes, alleviated the impact of some revenue shortfalls. Despite this help, some state and local governments, and transportation authorities still delayed transportation projects in 2021. While overall state revenue collections continue to improve, 40 out of 50 states still report overall revenue declines compared to pre-pandemic projections over FY 2020 and 2021, the National Association of State Budget Officers says.
Increased Federal, State, and Local Investment Will Drive Market Growth
Since 2018, Congress has provided additional resources for state transportation programs:
- The IIJA provides a 35 percent increase for federal highway investment through state formula and discretionary funds and a 65 percent increase for public transportation formula and supplemental funds. Additional money is provided for the Airport Improvement Program (AIP), freight passenger rail improvements, and multi-modal grants.
- States continue to obligate additional federal transportation funds that were available through the annual FY 2018-2021 appropriations process. States have four years to obligate $14.75 billion in supplemental highway, bridge, transit, and AIP funds.
- States have obligated 62 percent of the $103.8 billion in COVID-19 relief funds, including $4.6 billion of the $10 billion available to state Departments of Transportation (DOTs), at the end of 2021.
In 2021, 28 state legislatures approved 34 transportation funding measures that will provide at least $29 billion in new revenue for transportation projects and support activities over the next 10 to 20 years. Highlights include:
- Connecticut’s range of fees based on commercial vehicle sizes and miles driven.
- Louisiana’s gradual transfer of up to 60 percent of annual state sales tax on vehicle purchases to its transportation fund.
- Colorado’s increased state gas tax, 27-cent fee on online delivery purchases, new fees for electric motor vehicle registrations and vehicle rental fees, and 30-cent fee on most rideshare trips. Fees will be indexed to the National Highway Construct Cost Index.
- Missouri’s state gas tax raised 12.5 cents per gallon over five years. The law also increases electric vehicle fees and permits residents to seek refunds of passenger vehicle motor fuel taxes paid in the state.
- Fourteen states passed bonds and other one- time funding measures, including allocations of federal Covid relief funding.
- In November, Maine voters approved an annual $100 million transportation bond measure. Passage of a Texas referendum permits counties to bond for projects in underserved or underdeveloped areas.
- Voters approved an additional $6.9 billion in transportation funding in the 2021 general election. This included local sales taxes in nine Georgia counties ($870 million), and 49 local and special district funding measures in Texas ($4.4 billion). Over 50 percent of the measures approved were property taxes to support local government transportation programs.
Over half of the states and Washington, D.C., are expected to see increased or steady transportation construction market activity in early 2022, based on late 2021 state and local government contract awards.
Florida, Virginia, Indiana, Michigan, Ohio, Georgia, Wisconsin, and Missouri are among the largest markets expected to show growth.
Contract awards have been down in Texas, California, Illinois, New York, North Carolina, Minnesota, and Pennsylvania. In some cases, the decrease reflects a return to a baseline program level after a large increase in 2020 awards.
The value of state and local government contract awards is expected to increase over the coming year as states draft new budgets in the spring and begin to obligate and award IIJA-supported federal-aid projects. The outlook by state will change depending on how soon the additional federal resources make their way into the spending pipeline.
Additional Market Factors
Other market risks include changes in material prices, employment, and wages.
In 2021, average input prices for highway, street, and bridge construction rose an average of 20 percent, according to data from the U.S. Bureau of Labor Statistics. This includes costs for a materials, goods, services, and energy prices. The increase was largely driven by prices for steel and diesel fuel, which are historically volatile.
Contractors in some regions have also expressed concern over delays in obtaining some materials. ARTBA estimates that average projects costs increased 10 percent in 2021 compared to 2020, based on increases in input prices, inflation, and wages.
The number of workers employed by highway, street, and bridge contractors continues to be slightly below 2019 and 2020 levels, down 1 to 2 percent on average. Employees are working the same number of hours, and wages increased an average of 6 percent in 2021 compared to 2020.
The full ARTBA report covers all aspects of the transportation construction markets and can be viewed on ARTBA’s website. The full report covers in detail the following segments of the transportation markets:
Public Highway and Street Construction
ARTBA estimates the real value of public highways, street, and related construction will grow from $74.8 billion in 2021 to $78.3 billion in 2022, a 5 percent increase. This will be driven by increased federal funding through the IIJA, the improving economy, and continued growth in state and local tax revenues. On average, federal fund provide over half of revenues used for state DOT capital outlays.
Bridges and Tunnels
The pace of bridge and tunnel work is expected to grow 9 percent in 2022, increasing from $21.3 billion to$23.2 billion, accounting for project costs. Other key findings are included in the full report.
Light Rail, Subways, and Railroads
Investment by Amtrak and private Class 1 freight railroads is expected to increase 17 percent from $12.7 billion in 2021 to $14.9 billion in 2022. Subway and light rail investment is expected to decrease from $11.8 billion to $10.6 billion, a 10 percent decline.
Airport Runways and Terminals
The real value of airport construction, including terminals, runways, and related work, is expected to increase 3 percent from $24 billion in 2021 to $24.7 billion in 2022. Growth beyond 2022 will be driven by new public and private investments.
Ports and Waterways
The value of port and waterway investment is expected to increase 6 percent to $3.96 billion in 2022 from $3.75 billion in 2021.
The ARTBA market outlook is based on a series of proprietary econometric models for each mode and analysis of federal, state, and local data and market intelligence developed by ARTBA Senior Vice President and Chief Economist, Dr. Alison Premo Black.
The graph below shows the predicted values from the model and actual values of highway and bridge construction from the U.S. Census Bureau.
For the highway and bridge model, the adjusted R-squared is .92 meaning that approximately 92 percent of the variance of the dependent variable is explained by the variance of the independent variables. (A value of .92 is considered a very strong model)
This is a national estimate, and the performance of individual states and regions will vary. For the full report visit ARTBA.org.
This material appears in the March 2022 issues of the ACP Magazines:
California Builder & Engineer, Construction, Construction Digest, Construction News, Constructioneer, Dixie Contractor, Michigan Contractor & Builder, Midwest Contractor, New England Construction, Pacific Builder & Engineer, Rocky Mountain Construction, Texas Contractor, Western Builder