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2012 ARTBA transportation construction market outlook mixed, uncertain

Source: American Road & Transportation Builders Association, Washington, D.C.

No matter how you look at it, the outlook for 2012 transportation construction market depends on the transportation mode one is analyzing, ARTBA Senior Economist Alison Premo Black said recently in releasing her annual economic forecast during a 90-minute webinar for Wall Street analysts and construction industry executives.

"There is good news and bad news for 2012," she confirmed. The bad news is that the highway and bridge construction market is expected to contract six percent, to $72.6 billion from an estimated $77 billion in 2011. The subway and light rail markets will be down even more. "The main factors driving the decline in highway and bridge construction are not surprising: the winding down of infrastructure investment under the American Recovery & Reinvestment Act [ARRA], continued weak growth in the U.S. economy, persistent state and local budget challenges, and a static federal-aid highway program," Black says.

She cautions the long-delayed highway/transit reauthorization bill remains a "wild card." If Congress in early 2012 passes a multi-year bill, that at minimum, maintains current investment levels, and it could help interject greater certainty in the market. Both the Senate and House proposals also contain language to expand the Transportation Infrastructure Finance and Innovation Act (TIFIA), which if leveraged quickly, could offer another market boost, Black says.

The good news in the ARTBA forecast is the railroad market, driven largely by private sector investment; it is expected to increase by nearly four percent. Also on the plus side, the value of construction for ports and waterways is expected to grow by six percent, driven by work on both coasts in preparation for the 2014 expansion of the Panama Canal.

More good news: the transportation construction market sector will remain the most stable industry sector, as it has been for the past five years. Between 2007 and 2011, the real value of highway and bridge construction, adjusted with the ARTBA Price Index for material prices, wages and inflation, fell only 10 percent. Over the same period, the real value of total construction work in the U.S. fell by one-third from $1.1 trillion to an estimated $769 billion. And the real value of residential construction tanked more than 50 percent from $500.5 billion in 2007 to $236.5 billion in 2011.

Despite the national downturn in market activity, some states are poised for growth, Black notes. There are 18 states where the value of state and local government highway and bridge contract awards for fiscal year 2011 is higher compared to fiscal year 2010. This is an indicator that the value of work in those states will likely increase in the coming year as those projects are under way. The value of contract awards is down in 24 states and Washington D.C. Contract awards in the remaining eight states were relatively stable, either up or down within five percent.

ARTBA expects the value of 2012 airport runway work to fall four percent from $4.9 billion in 2011 to $4.7 billion, primarily because of flat funding for the Airport Improvement Program and the continued failure by Congress to pass a new aviation bill. In addition, after a decade of growth, the real value of subway and light rail construction is expected to drop nearly 16 percent from $5.4 billion in 2011 to $4.6 billion. Contract awards for subway and light rail are down sharply in 2011, indicating transit agencies are pulling back on projects.