Pit & Quarry, December 2011

EDITED BY BRIAN RICHESSON Senate House propose new highway funding plans T he surface transportation reauthorization debate accelerated with the Senate Environment Public Works Committees passage of Moving Ahead for Progress in the 21st Century MAP 21 a bipartisan two year bill by a unanimous record vote of 18 0 The Senate EPW Committee action has been longawaited and comes none too soon The construction industry sector is struggling to stay afloat in these tough economic times said David Thomey chairman of the board for the National Stone Sand Gravel Association and executive vice president of Maryland Materials Inc Passage of MAP 21 will bring needed certainty that is essential to the states in moving forward on highway projects and to informed capital and resource allocation decisions by business In the House of Representatives Speaker John Boehner R Ohio outlined the House Republicans new surface transportation bill entitled the American Energy Infrastructure Jobs Act H R 7 that he said would expand energy production and use the resulting revenues to repair Americas roads and bridges The plan also will include reforms aimed at cutting red tape and increasing private sector involvement in planning and construction The bills authorization length and funding levels have not been disclosed although some unconfirmed reports indicated that the legislation would provide five years of funding AGGREGATES FORECAST U S construction growth prospects Construction activity is about 30 percent below the 2005 peak level and is likely to remain along this trough for another two years While each of the major segments of construction residential nonresidential nonbuilding is driven by different factors they all ultimately depend on gross domestic product and employment growth As things stand now the path forward is flat for years to come Residential activity down the most and for the longest time stands the best chance of growing by more than 50 percent in the next six years With current building well below demographic demand levels fixed mortgage rates near 4 percent and prices down by more than 30 percent the housing sector should be booming We all know that foreclosures negative equity and tough lending standards are preventing a boom How long these headwinds continue depends on how fast the U S economy grows in the next five years Nonresidential building is doing better in 2011 but that momentum wont last without an increase in monthly employment Aggregate Segments Forecast 2007 2008 2009 2010 2011 2012 2013 2014 Residential Nonresidential Nonbuilding 180 160 140 120 100 080 060 040 020 000 gains High vacancy rates and slow Billion Metric Tons job growth mean low demand for new nonresidential space However just as in housing prices are down by more than 30 percent and financing costs are very low but money is only going to well leased projects with substantial equity buy in by owners Until recently nonbuilding activity has been strong but tight state and local budgets and reduced federal money all point to several difficult years ahead Whether you believe the stimulus program worked well or not there isnt going to be another big program Europe will not be a source of higher export demand for at least two to three years Emerging markets are where new export demand will occur but the amounts will not be big enough to counter sluggish domestic growth We can expect only modest GDP growth for the next twoplus years Our baseline forecast assumes that pro growth policies will be implemented by 2013 and begin to bear fruition by 2014 David Chereb David Chereb has many years of forecasting construction materials He received his Ph D in economics from the University of Southern California He can be reached at dc@ davidcherebgroup com 4 PIT QUARRY December 2011 www pitandquarry com