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Stimulus Bill Buoys Multiple Construction Types

February 2, 2009
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Stimulus legislation considered by the U.S. House of Representatives includes approximately $149 billion of funding to be obligated by September 30, 2009, for infrastructure and public building investment provisions, according to a tabulation by AGC.

Stimulus legislation considered by the U.S. House of Representatives includes approximately $149 billion of funding to be obligated by September 30, 2009, for infrastructure and public building investment provisions, according to a tabulation by AGC. Transportation infrastructure ($44 billion) includes $30 billion for highway and bridge construction, $9 billion for transit and $3 billion for airport improvement grants. Water and environmental infrastructure ($17 billion) includes $6 billion for the Clean Water State Revolving Fund (SRF), $4.5 billion for the Corps of Engineers and $2 billion for the Drinking Water SRF. Building infrastructure ($55 billion) includes $14 billion for K-12 school construction, $6 billion for higher education facilities, $6.7 billion for General Services Administration federal buildings and facilities, $5 billion for a public housing capital fund, $4.2 billion for Department of Defense (DOD) medical facilities, $2.1 billion for DOD facilities renovations, $3.1 billion for construction on public lands and parks, and 22 other categories. Energy and technology ($28 billion) includes $11 billion for the electricity grid, $6.9 billion for local government energy efficiency block grants, $6 billion for wireless and broadband grants, and $2.5 billion for energy efficiency housing retrofits.

There are also numerous tax provisions that would encourage construction activity (through faster write-offs, tax credits or favorable bond provisions) or assist construction firms (through extending loss carrybacks from two to five years, repealing the 3% withholding on government contracts currently slated to begin in 2011, and faster write-offs on equipment). A Senate bill is expected to be marked up; leaders in both houses hope to pass an identical bill and have it ready for President Obama’s signature by mid-February.

AGC has testified to three House committees in favor of infrastructure spending as a stimulus measure. Last month, Professor Stephen Fuller of George Mason University testified on AGC’s behalf to the House Transportation and Infrastructure Committee regarding the impact of nonresidential construction spending on jobs, gross domestic product (GDP) and personal earnings. (AGC testimonies and other information on stimulus are at www.agc.org.)

Economic indicators continue to be almost universally negative. Today, the National Association for Business Economics (www.nabe.com) reported that its quarterly survey of 105 corporate economists, conducted between December 17 and January 8, depicted “the worst business conditions since the survey began in 1982….For a second consecutive time, overall capital-spending plans for structures over the next 12 months remained decidedly negative….Only 5% of respondents now expect positive growth in capital spending on structures over the next 12 months.” On January 14, the Federal Reserve reported in its latest “Beige Book” survey of business conditions across the 12 Fed districts (referred to by the names of the headquarters cities), “Overall economic activity continued to weaken across almost all of the Federal Reserve Districts since the previous reporting period….Commercial real estate markets deteriorated in most Districts, with weakening construction noted in several Districts….Reports about commercial construction activity also were downbeat. In the Philadelphia District, commercial construction activity continued to fall. Cleveland reported that construction backlogs have declined for some contractors. Commercial contractors in the Atlanta and Chicago Districts reported declines in building activity and noted that more projects were cancelled or postponed. In St. Louis, contacts in commercial and industrial construction predicted a challenging environment in early 2009. San Francisco reported that commercial construction activity was very limited. Construction-related manufacturing contacts in the Dallas District reported that demand from commercial construction is shrinking rapidly.”

The producer price index (PPI) for inputs to construction industries slumped 2.5% in December and finished the year only 2.7% higher than a year earlier, compared to a 4.8% rise in 2007, the Bureau of Labor Statistics (BLS) reported on January 15. The rise was the smallest since 2003. The PPI for highway and street construction tumbled 5.4% for the month and 0.8% for the year; other heavy construction, -3.5% and 1.4%; nonresidential buildings, -2.4% and 2.2%; multi-unit residential buildings, -1.7% and 2.9%; and single-unit, -1.3% and 4.9%. The monthly declines were driven by drops in the PPIs for diesel fuel, -24% and -37%; steel mill products, -12% and 5.3%; copper and brass mill shapes, -9.6% and -24%; aluminum, -4.9% and -5.9%; and plastic construction products, -1.5% and 3.3%. The index for asphalt paving mixtures and blocks sank 8.3% in December but still rose 33% for the year. The PPI for concrete products was flat for the month and climbed 4.2% for the year; gypsum products were up 0.1% and 7.3%. Indexes for finished building and subcontractor categories differed sharply: new warehouse construction, -0.2% and 6.3%; offices, -0.1% and 6.1%; industrial buildings, 0% and 7.6%; schools, 4.8% and 12.7%. PPIs for nonresidential building work by concrete contractors rose 0.2% and 5.0%; electrical contractors, 0.9% and 5.1%; plumbing contractors, 1.4% and 9.2%; and roofing contractors, 2.3% and 13%.

The consumer price index (CPI) for all urban consumers fell 0.7%, seasonally adjusted, in December and rose just 0.1% for the year, the sixth year in a row the CPI has risen less than the construction PPI, BLS reported on January 16. The CPI for urban wage earners and clerical workers, which is used to adjust many labor contracts in construction and other industries, fell 0.5% for the 12 months through December 2008.

See below for the December 2008 PPI Table.

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