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Industry Overview The private categories with the best growth prospects in 2013 and into next year are transportation and lodging. Railroads have been building track, yards and even tunnels and bridges to accommodate two new sources of demand. One is oil from areas such as the Bakken formation in North Dakota that are not adequately served by pipelines. The other is ports that are preparing for the widening of the Panama Canal, which will enable much larger ships to travel from Asia to the east and Gulf coasts, necessitating more rail and truck freight movements. Hotels have begun spending more on renovations, and more hotel openings are expected in the next two years. Both private transportation and lodging should post double-digit spending growth in 2013 and 2014. Two sectors accounted for more than half of all public construction in 2012: highways and streets ($80 billion) and education ($68 billion). The former inched up 1 percent from 2011 to 2012 but shrank 5 percent year-to-date in the first five months of 2013. Educational construction spending decreased 4 percent last year and another 10 percent so far this year. Highway spending should wind up roughly flat for 2013 and 2014. Enactment in July 2012 of the federal-aid highway program known as Moving Ahead for Progress in the 21st Century (MAP-21) should ensure that federal funding will be stable until September 2014, when the act expires. However, state highway funding, mainly from fuel taxes and vehicle registration fees, has been edging down as drivers use increasingly fuel-efficient cars. While a few states have raised gas tax rates or enacted new taxes for highways, the funds will not affect construction budgets until 2014 or later. Educational spending is dominated by primary and secondary schools that depend heavily on property tax receipts. The recent rise in house prices in most parts of the country should eventually result in higher revenues for school districts. But it will take another one to three years before assessors reflect the higher valuations and the receipts get factored into budgets. Meanwhile, slower population growth, along with much lower migration into areas that previously needed to build new schools, have meant less demand for new classrooms. No Guarantees in Public Education Legislatures and local governments have cut sharply into construction budgets for statewide and community colleges. Rising sales and income taxes should enable state and municipal budgets to start expanding. But there is no assurance that construction will claim a share of the new funds – whether for higher education or other state and local projects. Educational construction spending appears headed for at least a 5 percent decrease in 2013 as a whole, followed by a slight upturn at best in 2014. Adding up the pieces, it looks as if total construction for all of 2013 will rise between 5 and 10 percent, similar to the 7 percent increase in 2012. Residential spending appears to be on track for a 15 to 20 percent gain, compared with 9 percent in 2012. Private nonresidential spending should grow 5 to 10 percent, down from 16 percent last year. Public construction will shrink another 3-6 percent, following last year's 3 percent decline. The outlook for 2014 is murky. At this early vantage point, total construction spending could accelerate a bit. Residential construction is likely to grow somewhat more slowly, but both nonresidential and public construction spending should pick up modestly. n Ken Simonson is chief economist of Associated General Contractors of America. He can be reached at simonsonk@agc.org. August 2013 | Construction Equipment Distribution | www.cedmag.com | 45 42_Simonson_Feature_KP.indd 45 7/25/13 12:49 PM