September Newsline: Stimulus impact on utility construction, 2009 infrastructure spending drop, and more

September 2009 Vol. 64 No. 9

A junk rating indicates the state’s bonds and other securities are not considered investment-grade, meaning a smaller pool of potential buyers will require higher interest rates to offset the greater risk they’re taking in buying the paper.

FMI 2Q09 construction outlook

In FMI’s Construction Outlook report, the second quarter of 2009 remains bleak. Total construction in 2009 and 2010 will be down 13 percent and 7 percent respectively. FMI anticipates that nonresidential construction will turn negative this year and decline 14 percent with even further declines of 17 percent in 2010.

Nonbuilding construction will continue to be the only bright spot, increasing 4 percent per year in 2009 and 2010, although not in the most obvious segments. Year-to-date nonresidential put in place construction through April is flat, but is expected to decrease sharply throughout the year. Contractors are still reporting backlogs of nine months in 2Q09 (down from 11 months in 1Q08), according to FMI’s Second Quarter Nonresidential Construction Index (NRCI).

Tight credit continues to cause cancellations and delays. Project delays continue to be four times the normal rate and are currently at 20 percent (up from three times in 3Q08). Project cancellations are five times the normal rate and are currently at 10 percent of backlog (doubled from 3Q08). Credit is expected to remain tight through 2010 and delays and cancellations are likely to increase.

According to FMI’s Q09 NRCI, “Now that the details of the American Recovery and Reinvestment Act of 2009 (ARRA) projects are beginning to become known, nonresidential building contractors are realizing stimulus funds won’t bring an immediate cure for declining backlogs as 88 percent of panelists said they had not yet seen the affects of the stimulus bill. However, 23 percent expect the bill will increase their backlogs as much as 5 percent in the next year.”

The water and wastewater segments were intended to benefit from the stimulus bill and will receive some benefit. These segments have been revised slightly upward from 2010 to 2012.

Construction has lost more than 1 million jobs since its January 2007 employment peak.