WITH A NEW HIGHWAY BILL IN PLACE, THE FUTURE NOW LOOKS VERY BRIGHT FOR THE AGGREGATES INDUSTRY.
By Mark S. Kuhar and Josephine Smith
It goes without saying, 2015 went out with a bang, and looking ahead to 2016, it is all systems go, full speed ahead.
In a major victory for the aggregates industry, both chambers of Congress voted to approve the Fixing America’s Surface Transportation, or FAST Act. The $305 billion, five-year bill passed the House by a vote of 359 to 65 and the Senate by a vote of 83 to 16. President Obama signed the bill on Dec. 4, 2015.
The bill, among other things:
- Authorizes the Highway Trust Fund through 2020.
- Establishes a pilot program for public-private transit partnerships.
- Restores the authority of Import-Export bank, which helps foreign customers finance the purchase of U.S. products.
- Facilitates commerce and the movement of goods by refocusing existing funding for a National Highway Freight Program and a Nationally Significant Freight and Highway Projects Program.
- Expands funding available for bridges off the National Highway System.
- Streamlines the environmental review and permitting process to accelerate project approvals, without sacrificing environmental protections.
- Eliminates or consolidates at least six separate offices within the Department of Transportation and establishes a National Surface Transportation and Innovative Finance Bureau to help states, local governments, and the private sector with project delivery.
- Increases transparency by requiring the Department of Transportation to provide project-level information to Congress and the public.
- Promotes the deployment of transportation technologies and congestion management tools.
- Encourages installation of vehicle-to-infrastructure equipment to improve congestion and safety.
NSSGA Analyzes Bill
The National Stone, Sand and Gravel Association (NSSGA) offered a free webinar explaining the main components of the bill. Michael W. Johnson, NSSGA president and CEO, predicted that due to the bill, equipment sales to aggregates producers would pick up fast and production at aggregates operations would see a spike starting in the second and third years of the funding mechanism.
The seminar was conducted by Johnson, Pam Whitted, senior vice president legislative and regulator affairs; Jim Riley Sr., director of government affairs; Michele Stanley, director of government affairs; and Ashley Amidon, director of government affairs.
“This is significant legislation that stops 36 straight extensions of the highway program in this country,” Johnson said. “The last time we had a bill this long in highway transportation policy was 1998. It is long overdue.”
In simple terms, the FAST Act allows the construction industry to get back to work. It boosts highway spending by 15 percent and transit spending by 18 percent.
“The bill also makes meaningful steps to cut red tape and speed permitting so projects can get started more quickly,” Johnson said.
Whitted detailed the legislative landscape that led to the passage of the bill, and revealed the names of the legislators who did not vote for it. “We are going to have to do some real work with these members to make them understand the importance of this program,” Whitted said. “It is not republican or democrat, it is for America.”
The $305.5-billion bill contains total U.S. DOT Funding Authorization of:
- FY16–$58.3 billion.
- FY17–$59.8 billion.
- FY18–$61 billion.
- FY19–$62.5 billion.
- FY20–$64 billion.
“I can’t emphasize enough how much we have pushed for increased funding,” Whitted said. “And indeed we did get an increase in funding. Not as much as needed … but certainly better than we anticipated.”
Of the $305.5 billion, $281 billion represents the gross contract authority for highways over the five years of the bill. The rest of the monies will go to future general fund appropriations, the Emergency Relief Program and the Emergency Preparedness Fund.
Many people are asking how the bill is paid for. Over and above the amount that will come from the Highway Trust Fund, Congress tapped a variety of sources to make up the shortfall. These include, among others:
- $53.3 billion from the Federal Reserve surplus.
- $6.9 billion from a Federal Reserve dividend payment cut.
- $6.2 billion from the sale of oil from the Strategic Petroleum Reserve.
- $5.2 billion from indexing customs fees for inflation.
- 2.4 billion from allowing the IRS to hire private tax collectors.
Johnson noted that while the association is happy to see this bill, and the aggregates industry will take advantage of it, it should not be forgotten that the Highway Trust Fund, and the larger issues regarding its future solvency, were not addressed by Congress but will eventually have to be up the road.
But the good news, for right now, is that money is slated to move very soon. “You will start to see monies flow to the departments of transportation in 2016,” Johnson said.
Aggregates Production
Even before the highway bill was signed, sealed and delivered, aggregates production was creeping up, due to an improving economy.
According to the latest figures released by the U.S. Geological Survey (USGS), an estimated 697 million metric tons (Mt) of total construction aggregates was produced and shipped for consumption in the United States in the third quarter of 2015, an increase of 5 percent compared with that of the third quarter of 2014. “The estimated production for consumption in the first nine months of 2015 was 1.69 billion metric tons, an increase of 5 percent compared with that of the same period of 2014,” said USGS Crushed Stone Commodity Specialist Jason Willett.
An estimated 406 Mt of crushed stone was produced and shipped for consumption in the U.S. in the third quarter of 2015, an increase of 7 percent compared with that of the third quarter of 2014. The estimated production for consumption in the first nine months of 2015 was 991 Mt, an increase of 6 percent compared with that of the same period of 2014.
The estimated U.S. output of construction sand and gravel produced and shipped for consumption in the third quarter of 2015 was 291 Mt, a slight increase compared with that of the third quarter of 2014. The estimated production for consumption in the first nine months of 2015 was 702 Mt, an increase of 4 percent compared with that of the same period of 2014.
The estimated production for consumption of construction aggregates in the third quarter of 2015 increased in six of the nine geographic divisions compared with that sold or used in the third quarter of 2014. Production for consumption increased in 28 of the 43 states for which estimates were made.
The five leading states, in descending order of production-for-consumption, were Texas, California, Michigan, Pennsylvania and Ohio. Their combined total production for consumption was 208 Mt, an increase of 6 percent compared with that of the same period of 2014 and represented 30 percent of the U.S. total.
The estimated production for consumption of crushed stone in the third quarter of 2015 increased in seven of the nine geographic divisions compared with that sold or used in the third quarter of 2014.
Production for consumption increased in 31 of the 46 states for which estimates were made. The five leading states, in descending order of production for consumption, were Texas, Pennsylvania, Missouri, Ohio and Illinois. Their combined total production for consumption was 136 Mt, an increase of 5 percent compared with that of the same period of 2014 and represented 34 percent of the U.S. total.
The estimated production for consumption of construction sand and gravel in the third quarter of 2015 increased in six of the nine geographic divisions compared with that sold or used in the third quarter of 2014.
Production for consumption increased in 26 of the 45 states for which estimates were made. The five leading states, in descending order of production for consumption, were California, Texas, Minnesota, Michigan and Washington. Their combined total production for consumption was 108 Mt, a slight decrease compared with that of the same period of 2014 and represented 37 percent of the U.S. total.
There is no doubt that additional production increases are in store as monies begin to flow to the states in 2016.
Cement Production
Portland (including blended) cement consumption increased by 2.6 percent in the third quarter of 2015 compared with that of the third quarter of 2014. Consumption in the first nine months of 2015 increased by 3.2 percent compared with that of the same period of 2014. This information is obtained from the USGS monthly survey of U.S. cement producers.
With the passage of a five-year federal transportation bill, cement manufacturers will see a rise in consumption, according to the Portland Cement Association (PCA).
The Fixing America’s Surface Transportation (FAST) Act will provide more than $305 billion to maintain and improve the nation’s roads and bridges. Cement consumption’s largest impact will focus on authorizations from the Federal Highway Administration (FHWA).
“FAST represents an average addition of 835,000 metric tons annually to the cement industry,” said Edward J. Sullivan, chief economist and group vice-president at PCA. “Smaller increases occur in the near term (370,000 tons for 2016) and larger net increases occur in the out years of the forecast horizon (1.4 million tons for 2020).”
FAST is seen largely as an improvement over the previous MAP-21. While funding levels are modestly higher, it also represents a multi-year commitment that allows states to engage in multi-year projects.
Construction Spending
Construction spending in the United States has also been on the increase. During the first 10 months of 2015, construction spending amounted to $888.1 billion, 10.7 percent (±1.3 percent) above the $802.3 billion for the same period in 2014, according to the U.S. Census Bureau of the Department of Commerce.
Construction spending during October 2015 – the most current month available – was estimated at a seasonally adjusted annual rate of $1,107.4 billion, 1.0 percent (±1.8 percent) above the revised September estimate of $1,096.6 billion. The October figure is 13.0 percent (±2.5 percent) above the October 2014 estimate of $979.6 billion.
In October, the estimated seasonally adjusted annual rate of public construction spending was $304.9 billion, 1.4 percent (±3.0 percent) above the revised September estimate of $300.8 billion. Educational construction was at a seasonally adjusted annual rate of $69.2 billion, nearly the same as (±2.8 percent) the revised September estimate of $69.2 billion.
Highway construction was at a seasonally adjusted annual rate of $94.1 billion, 1.1 percent (±7.1 percent) above the revised September estimate of $93.1 billion.
Spending on private construction was at a seasonally adjusted annual rate of $802.4 billion, 0.8 percent (±1.0 percent) above the revised September estimate of $795.8 billion.
- Residential construction was at a seasonally adjusted annual rate of $399.0 billion in October, 1.0 percent (±1.3 percent) above the revised September estimate of $395.0 billion.
- Nonresidential construction was at a seasonally adjusted annual rate of $403.4 billion in October, 0.6 percent (±1.0 percent) above the revised September estimate of $400.8 billion.
According to Patrick Newport, U.S. Economist for IHS Global Insight, “Single-family and multifamily construction, making steady monthly gains, are on a positive trajectory heading into 2016. Spending on multifamily structures is back to normal. Spending on new single-family residential structures remains depressed by historical standards. What matters for the economy though, is that it is improving and thus adding to economic growth.”
IHS Global Insight expects that residential investment will contribute 0.27 percentage points to real GDP growth in 2015, after adding .05 percent in 2014.
“Non-residential construction, which grew at a spectacular 42.8 percent annual rate in the second quarter as spending on manufacturing plants soared, slowed to 3.0 percent in the third,” Newport said. “Spending remains steady almost across the board with 7 of 11 categories, up more than 10 percent from year-ago levels. A key category to watch is manufacturing construction, which is at elevated levels (mostly because of spending on chemical plants) – and is set to land hard, if not crash, sometime in 2016.
“Public construction also caught fire in the second quarter, increasing at a 30.8 percent annual rate – and, like its private nonresidential counterpart, slowed sharply in the third to an 8.8 percent rate,” Newport continued. “For October, spending was up 1.4 percent month-on-month and 6.1 percent year-on-year – solid – and a good omen for 2016.
“Core construction spending grew at a record-setting 28 percent annual rate in the second quarter (data started in 1993), contributing 1.4 percentage points to second quarter GDP growth,” Newport concluded. “Its third quarter contribution was 0.4 percent, solid but far from spectacular. For 2016, outside of manufacturing construction, we are expecting solid broad-based growth.”
Transportation Construction Forecast
The passage of the FAST Act, increased investment from state and local governments and continued strengthening in the U.S. economy are the key factors driving an expected 4 percent growth in the 2016 U.S. transportation construction market, according to the American Road & Transportation Builders Association’s (ARTBA) chief economist.
Dr. Alison Premo Black released her forecast during a Dec. 2, 2015, webinar for analysts, investors, transportation construction market executives, public officials and the media.
In 2016, the market will hit $208.3 billion, up from $200.5 billion in 2015, according to Black.
The multi-year federal transportation bill will provide much-needed stability for the highway, bridge and transit markets after a decade of short-term extensions. The modest increase in federal highway and bridge investment in 2016 will help the program keep pace with changes in inflation, materials and project costs. Federal funding accounts for an average of 52 percent of state department of transportation capital outlays for highway and bridge improvements.
The highway and bridge construction market is expected to be uneven across the country, with programs growing in 23 states and Washington, D.C., and remaining flat in nine states. A number of states have increased their own funding in the last few years, including 15 that have raised their own gas taxes for transportation investment since 2013. Overall, states approved 30 legislative measures in 2015 to increase investment, while voters approved 68 percent of the ballot measures for transportation funding.
Outside of construction, state and local governments are expected to spend an additional $42 billion for maintenance work; $14.8 billion for in-house and consultant planning and design services; and $7.8 billion for right-of-way purchases as part of their highway and bridge programs.
The ARTBA forecast also predicts:
Highways, Private Driveways and Parking Lot Construction – The highway, private driveways and parking lot construction market will increase 4.2 percent to $71.4 billion. This includes $58.1 billion in public and private investment in highways, roads and streets, and $13.2 billion in largely private investments in parking lots, driveways and related structures.
Real growth in highway, road and street construction in 2016 is moving in the right direction, but is still years away from a full recovery, absent a major increase in investment at all levels of government. The real value of construction work fell over 23 percent between 2009 and 2013, declining from $66.3 billion in 2009 to $50.8 billion in 2013. The total value of work forecast for 2016 is $58.1 billion.
Contractors will have an additional $45.7 billion in business opportunities from private highway and bridge work that is completed as part of housing developments and larger commercial structures, separate from parking lots and driveways. This is up from an estimated $42.6 billion in private work in 2015.
Bridges and Tunnels – The bright spot, as it has been in recent years, is the bridge and tunnel construction market, which is expected to remain strong, increasing from $33.3 billion in 2015 to $34.6 billion in 2016. State and local governments continue to invest significant resources in these projects, with the share of bridge and tunnel work growing from 18 percent of all highway and bridge work in 1998 to over 37 percent in 2015. The share of bridge work is expected to remain at these high levels over the next five years.
Railroads, Light Rail and Subways – ARTBA is forecasting that light rail, subway and railroad construction will be down slightly in 2016 to $21.1 billion in work, compared to $21.3 billion in 2015. Heavy rail investment by Class 1 freight railroads will increase from $13.5 billion to $13.6 billion. Subway and light rail work is forecasted to decline slightly from $7.8 billion to $7.6 billion. This decline is in part attributable to uncertainty over the federal surface transportation program. Although a number of ongoing projects have supported record-levels of transit construction work, contract awards in the past year have declined, indicating fewer plans in the pipeline. The market is expected to resume growth of close to 3 percent in 2017 as the U.S. economy continues to grow and federal investment levels are stable.
Airport Runways and Terminals – The total value of airport runway and terminal construction will grow from $12.9 billion in 2015 to $14.3 billion in 2016. Investment in runways is expected to grow from $5.8 billion in 2015 to $6 billion in 2016, and terminal construction will grow from $5 billion to $5.9 billion. Terminal work over the next five years is forecast to reach $8 billion, the same investment levels before the market downturn that started after 2009. The Administration and airport construction program continue to temper future growth.
Ports and Waterways – The ports and waterway construction market will remain flat at $2.3 billion in 2016, with modest growth resuming in 2017 and beyond. Construction of water terminals will be steady, with a slight uptick in activity for waterway dock and pier construction.
ARTBA’s proprietary econometric model takes into account a number of economic variables at the federal, state and local level. The forecast measures the public and private value of construction put in place, published by the U.S. Census Bureau. The ARTBA estimate for the private driveway and parking lot construction market are separate.