National economic report

Pit & Quarry, Feb, 2004 by Patrick Hernan

The 2004 presidential campaign is in full swing amid economic news favorable to the Bush camp. Inflation is in check, construction spending and manufacturing are up, interest rates are at 45-year lows, Wall Street finally likes what it sees and a war dividend is coming due.

With the capture of Saddam Hussein and the robust economy helping President Bush in the polls, the Democratic contenders for the White House are battling for relevancy. This will be an interesting year in politics--one that begins with primaries and caucuses in New Hampshire and Iowa and culminates with the general election in November.

Stone producers, of course, still are waiting for state and local budgets assailed by a three-year downturn to get back in the black and for a federal highway package to replace the long-ago expired TEA-21 legislation. The industry supports a $375-billion, six-year House proposal favored by many members of Congress. Meanwhile, the Bush administration has set its sights much lower.

"As we face an economy that is without any significant job growth, it is important to provide the support necessary to keep the recovery on track," says Stephen E. Sandherr, CEO of the Associated General Contractors of America. "Jobs are still the missing link, and if Congress and the administration are looking to create jobs, they need to look no further than this six-year transportation bill."

After months of debate and delays, significant movement on a replacement for TEA-21 is expected this month. Unless another unforeseen event occurs, the funding stream should become clear by spring. How will the vitally important highway market shape up this year? William Buechner, vice president of economics and research for the American Road & Transportation Builders Association (ARTBA), says he anticipates growth of 4.2 percent.

This growth, he says, will be spurred by increases in federal funding and "renewed growth" in the U.S. economy.

The expected congressional approval of $33.6 billion in federal highway investment for fiscal-year 2004--an increase of $2 billion over fiscal-year 2003 levels--will drive growth in the highway segment, Buechner says. ARTBA, in fact, is projecting the value of construction on highway and bridge projects in the 2004 fiscal year to set a record of $62.5 billion, up from $60 billion in the 2003 fiscal year.

What's more, Buechner says a U.S. economy in growth mode "should ease the dire state and local budget situation and permit renewed growth of investment in highways and bridges."

ARTBA's forecast crunches the numbers for two potential replacements for TEA-21. If lawmakers adopt the $375 billion House bill--and if state and local highway funding grows with the economy--annual growth in the highway market would average 7 percent over the next six years. A $311 billion Senate bill would generate 4.8 percent annual growth, Buechner says.

Here are some of Buechner's thoughts on public transit and airports:

* Transit and light-rail construction grew sharply in 2001 and 2002, but eased off slightly in 2003. For fiscal-year 2004, Congress is expected to enact a small increase in transit investment--from $7.18 billion in fiscal-year 2003 to $7.3 billion. This likely will help maintain the high levels of construction activity of the past few years.

* Construction work performed on airport runways, taxiways and related projects was down in 2003, in part because more than $500 million in airport construction funds was diverted to airport security in 2002 and 2003. Legislation to discourage this diversion has been enacted. Congress has approved $3.4 billion in fiscal-year 2004 for airport construction. This matches the fiscal-year 2003 congressional appropriation. "Eliminating the diversion [of] construction funds to airport-security programs ... should help foster modest growth in the airport construction market in 2004," Buechner says.

Growth in cement segment

The Portland Cement Association (PCA) says, "the U.S. economy is set to move into high gear in 2004," owing in part to improvements in the labor market. Regardless, PCA does not expect robust construction activity to arrive until 2005.

"[This] seemingly contradictory outlook is based on the prospects of cooling single-family construction under the weight of rising interest rates, a delayed and muted improvement in commercial construction activity and a public construction sector still coping with state-level fiscal crises," says Edward Sullivan, PCA's chief economist.

PCA projects growth in cement consumption between 2005 and 2008 on the order of 2.7 percent to 3 percent. For now, Sullivan says the group expects that "the emerging economic recovery will create jobs, escalate wage gains and lead to stronger capital gains. Combined, these factors will strengthen states' tax base, resulting in a gradual easing of fiscal stress."

An upswing

Low interest rates helped construction spending increase 1.2 percent in November to a seasonally adjusted annual rate of $934.5 billion, the U.S. Department of Commerce reports. This marks the fifth-straight month construction has set a record.