2013 Transportation Construction Market Outlook: Modest Growth

Written by  Dr. Alison Premo Black, ARTBA Chief Economist

Editor’s Note: Curious to see how Texas lettings measure up to the rest of the country? The following article details several factors affecting the nation’s construction industry—not only highways, but also specifically addressing bridges, tunnels, airports, and rail. The “modest growth” exemplified by the following national statistics are not indicative of the projected amount of highway work in Texas for 2013. Texas’ 2013 letting is estimated at over $7 billion, due to underestimation of the Highway Trust Fund, the Mobility Fund, and other cost savings.

The U.S. transportation construction infrastructure market is expected to show modest growth in 2013, increasing 3% from $126.5 billion to $130.3 billion. That’s the key finding in ARTBA’s annual economic forecast which we released on November 30.

The federal surface transportation program, combined with state and local government transportation investments, are the most significant drivers of the national transportation infrastructure construction market.

Let’s take a closer look at the 2013 numbers.

MAP-21’s Impacts
The pavements market will be sluggish in 2013, growing 2.8% to $58.4 billion. This includes $47.7 billion in public and private investment in highways, roads, and streets, and $10.7 billion in largely private investments in parking lots, driveways, and related structures.

With no new real federal funding in the 2012 MAP-21 surface transportation law, still recovering state and local tax collections and modest new housing starts, the pavements market will be uneven across the nation. Pavement work is anticipated to be down in twenty-five states. Growth above a 5% range is expected in nineteen states. Major markets California and Texas will be down slightly from 2012, but will actually be returning to a normal baseline level after several major project awards over the past several years.

There are at least two developments related to MAP-21 that could lead to additional construction market activity in the sector in the short term and strengthen the market in 2013 and 2014. First, the law’s restructuring of the federal highway program offers state transportation departments more flexibility in their use of federal funds. This could result in slightly increased investment in highway, bridge, and pavement work above the forecast in some states.

Second, MAP-21’s expanded federal Transportation Infrastructure Finance and Innovation Act (TIFIA) loan program could also boost construction activity in some states.

Hurricane Sandy
While the economic costs of Hurricane Sandy are still being calculated, it’s fair to say that major reconstruction work along the East Coast in states that were affected by Hurricane Sandy will also be a market factor in 2013 across all modes. Additional federal, state, and local emergency funds for rebuilding this infrastructure will be a boost as projects get underway.

Bridges and Tunnels
After a four-year run of significant market growth—reaching a record high $28.5 billion in 2012—the bridge and tunnel construction market will cool off in 2013, likely remaining flat at about $28.2 billion. Our forecast shows projects in eight states— California, Florida, Illinois, New Jersey, New York, Pennsylvania, Texas, and Washington—will continue to account for about half of the U.S. market activity in this sector. With a number of major bridge projects on the horizon, however, the bridge and tunnel sector should rebound smartly in 2014.

Ports and Waterways
One very bright spot will be U.S. port and waterway construction, which will jump nearly 25% to $2.65 billion—driven largely by expanded sea trade expected with completion of the Panama Canal expansion project in 2015. Increased market activity is anticipated in California, Florida, Kentucky, Maryland, Massachusetts, Mississippi, New Jersey, New Hampshire, New York, Texas, Virginia, and Washington.

Airport Runways and Terminals
Airport runway and terminal construction is expected to show growth in twenty-eight states, with sector growth overall of 4.5%, reaching $12.5 billion. Market-driving states include: Alaska, Arizona, California, Florida, Illinois, New York, Ohio, Tennessee, and Texas. Funding for airport projects is anticipated to increase over the next five years, largely tracking growth in passenger enplanements.

Railroads, Light Rail, and Subways
The U.S. railroad construction market, driven largely by private investment in Class 1 freight tracks and structures, is expected to grow just under 5% in 2013, reaching $10.4 billion from $9.9 billion in 2012.

Bob Tally
Bob Tally, FHWA Division Administrator, speaks with the
Houston area contractors.

The uncertainty caused by the thirty-three month long delay in passage of MAP-21 will be felt in the subway and light rail markets. Construction activity is projected to be down by 8%. There will be some bright spots, however. Based on recent contract awards, these states will be moving forward on key transit projects: California, Florida, Georgia, Hawaii, Illinois, Kansas, Massachusetts, New York, Oregon, Pennsylvania, Texas, and Washington.

The overall subway and light rail market should rebound in 2014 with the federal funding certainty brought with enactment of MAP-21.

“Wild Card”
A major wild card in this forecast: the so-called “fiscal cliff”— the dire financial situation set to occur at the beginning of 2013 if Congress and the president can’t agree on tax and spending reforms. Although the “fiscal cliff” would not directly impact federal highway investment to the states, it could affect state and local finances, and thereby cause governments to pull back or delay projects. Such action in turn would have negative consequences on the highway construction market. Individual businesses may also delay capital and hiring decisions amid the uncertainty. As this issue goes to press, it remains to be seen if the two sides will jump or not.

The forecast uses an ARTBA econometric model that takes into account a number of economic variables at the federal, state, and local level. It is measuring the public and private value of construction put in place, published by the U.S. Census Bureau. The ARTBA estimate of the private driveway and parking lot construction market is based on data from the U.S. Census Bureau’s “Economic Business Census.”

The preceding article has been reprinted with permission from the American Road and Transportation Builders Association (ARTBA). AGC of Texas is an affiliate of ARTBA. For more information, visit www.artba.org.

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