The State Of The Industry In The Post-COVID-19 Era.
By Mark S. Kuhar and Josephine Patterson
The year 2020 will be remembered – and not exactly in a good way – for COVID-19, a crazy presidential election and economic turmoil not seen in decades. The aggregates and construction industries, fortunately, were not decimated by the pandemic and other current events, as they were declared “essential businesses.”
COVID-19 vaccines are now rolling out and with the New Year upon us, everyone is looking ahead with hope that 2021 brings better things. Rock Products reached out to industry thought leaders to find out what they think of the road ahead.
“We are optimistic that a new Biden administration and the 117th Congress will come together on significant infrastructure investment as part of comprehensive pandemic-related economic recovery legislation in 2021,” said Mike Johnson, president and CEO of the National Stone, Sand & Gravel Association (NSSGA). “The need to repair our deteriorating infrastructure is well known and the resulting job and GDP growth will be a big boost to our virus-stricken economy. Additionally, it is essential that the states get the financial aid that they need from the federal government to close budget gaps created by increased expenses and lost tax revenue due to the pandemic. In 2021, NSSGA will continue to aggressively advocate for these and other public policies that make it possible for our members to safely and efficiently produce the aggregates that are necessary to build the improved infrastructure that our country so desperately needs.”
Darin Matson, president and chief executive officer of the Rogers Group Inc. and NSSGA chairman, said that as a result of the one-year reauthorization of surface transportation funding, he believes 2021 will be relatively consistent in terms of infrastructure spending and volumes through the first three quarters.
“We are optimistic that a long-term bipartisan infrastructure bill will be in place prior to the expiration as we enter the fourth quarter,” Matson said. “Having a long-term infrastructure bill with increased levels of spending will benefit the industry for years to come. Where we remain less optimistic for the coming year is in the area of commercial and local government spending.”
Matson noted that COVID responses have created tax revenue shortfalls for municipalities and hardships for many businesses, which will certainly have a negative impact on volumes in the coming year.
“A pandemic relief bill in the first quarter could negate some of these concerns, but the true net impacts of such a bill to our industry, outside of state DOT relief, is really unknown until funds actually hit the streets and cash begins to flow toward projects that have been shelved,” he stated.
“We are optimistic about the opportunity for growth in 2021,” said Jay Moreau, CEO, US ACM, LafargeHolcim. “Strength of the housing market will give us early traction, and the extension of the FAST Act provides stability. We are optimistic that the Biden administration will act swiftly to deliver a long-range infrastructure spending plan. At the same time, we will see customer demand for greener building increasing steadily – from the CO2 transparency of EPDs to low-carbon footprint products. Our industry will adjust to these demands by retooling product offerings and evolving how we think about building for the future.”
Industry manufacturers remain committed to the market and are prepared for a surge in business in the years ahead.
“We are optimistic about the aggregate industry performance in 2021. The prospect of increasing federal and state funding for infrastructure projects – roads, bridges, waterways, airports – is a great engine for economic growth,” said Chris Nawalaniec, president, Stedman-Machine Co., and chairman of NSSGA’s Manufacturers & Services Committee. “Maintaining a sensible level of regulation will help the industry move forward with new equipment and processing innovations, lowering energy and environmental impacts. Our industry is ready for a great 2021.”
“Even though the reduction in 2020 tax revenues are affecting individual state budget activities, we feel confident the federal government will move an infrastructure investment program forward early in 2021,” said Jeffrey Gray, director of key accounts and systems, materials solutions for Astec Industries Inc. “This would provide the long-term confidence needed to support continued growth in the sand, stone and gravel industry.”
“With all of the uncertainty, will we get an infrastructure bill, when will we have a vaccine, will states have money to spend on infrastructure, I expect 2021 to be much like 2020,” said Mark Krause, managing director, North America, McLanahan. “I do think there is a good shot that the second half of 2021 should see some more robust buying, but that is dependent upon the items previously mentioned becoming clearer. Forecasting for 2021 will be difficult. You can sense the optimism within our industry. We were going along well in March of 2020 when our world changed. The need for construction materials is still strong.”
ARTBA Transportation Construction Forecast
Construction forecasts for 2021 are a mixed bag. The U.S. transportation construction market is expected to shrink 5.5% next year, driven primarily by the severe economic recession caused by the coronavirus pandemic, according to the annual forecast released by the American Road & Transportation Builders Association (ARTBA).
Overall, the value of work is expected to drop from $294.2 billion in 2020 to $278.1 billion in 2021, according to ARTBA Chief Economist Dr. Alison Premo Black’s analysis.
The expected market contraction follows a record year for most transportation sectors in 2020. While Pennsylvania and Washington state temporarily shut down projects in the spring, the rest of the country classified transportation construction as an essential industry.
Transportation improvements continued with enhanced safety protocols in place. As a result, total transportation construction activity – after project costs and inflation – is expected to increase by nearly 4% in 2020, with significant gains in highway and street construction (+8.3%), subway and light rail work (+8.8%), airport terminal and runway construction (+7.2%), and port and waterway spending (+12%). Bridge and tunnel construction was the exception, with activity falling 20% in 2020, reflecting several broader market trends including a focus on smaller structures.
The major drop-off in transportation user fees caused by COVID-19 stay-at-home orders initiated last spring, high national unemployment, and the decline in public transit use and demand for air travel are the key factors affecting the outlook, ARTBA said.
“Not surprisingly, the 2021 market reflects the broader COVID-19 economic contraction that began in February 2020,” Black said. “Congress and the president could help mitigate the economic downturn and put the nation on the road to a stronger recovery by approving a long-term, robustly funded transportation infrastructure investment package early in 2021.”
Black adds market growth could resume in 2022, provided that economic conditions improve and travel demand in some sectors begins to return to pre-recession levels.
In her forecast, Black cautions that overall transportation construction activity will vary across the country as states deploy different strategies to balance their budgets and manage debt.
States are expecting shortfalls in transportation revenues of anywhere from $35 billion to $40 billion through 2024, ARTBA said.
Among the key findings in the ARTBA forecast, the real value of public highway, street and related work by state DOTs and local governments – the largest market sector – is expected to decline $3.1 billion, or 4%, to $74.5 billion in 2021. ARTBA estimates work on private highways, bridges, parking lots and driveways will decrease from $72.3 billion in 2020 to $66.4 billion in 2021. Based on recent contract award data, the market should experience growth in half of the states.
The pace of bridge and tunnel work is expected to decline 2% in 2021 after steep declines in 2020. The total value of work fell from $27.5 billion in 2019 to $22 billion in 2020, or 20%. The market is forecast to be $21.7 billion in 2021 and work is expected to be up in about half the states.
Dodge Construction Outlook
Dodge Data & Analytics offered its 2021 Dodge Construction Outlook, a mainstay in construction industry forecasting and business planning. The report predicts that total U.S. construction starts will increase 4% in 2021, to $771 billion.
“The COVID-19 pandemic and recession has had a profound impact on the U.S. economy, leading to a deep drop off in construction starts in the first half of 2020,” stated Richard Branch, chief economist for Dodge Data & Analytics. “While the recovery is underway, the road to full recovery will be long and fraught with potential potholes. After losing an estimated 14% in 2020 to $738 billion, total construction starts will regain just 4% in 2021.”
“Uncertainty surrounding the next wave of COVID-19 infections in the fall and winter and delayed fiscal stimulus will lead to a slow and jagged recovery in 2021. Business and consumer confidence will improve over the year as further stimulus comes in early 2021 and a vaccine is approved and becomes more widely distributed, but construction markets have been deeply scarred and will take considerable time to fully recover,” he stated. “The dollar value of starts for residential buildings will increase 5% in 2021, nonresidential buildings will gain 3%, and nonbuilding construction will improve 7%. Only the residential sector, however, will exceed its 2019 level of starts thanks to historically low mortgage rates that boost single-family housing.”
The pattern of construction starts for more specific segments is as follows:
- Highway and bridge starts will make modest gains in 2020 and 2021. The predicted $75 billion in total investment for 2021 would be the second largest yearly total over the past 15 years.
- Environmental and public works starts will fall 7% in 2020 and increase 1% in 2021. However, total public works construction starts will see little improvement as 2021 begins due to continued uncertainty surrounding additional federal aid for state and local areas. Additionally, the unfinished appropriations process for fiscal year 2021, which began Oct. 1, raises doubt on the sector’s ability to post a strong gain in 2021.
- The dollar value of single-family housing starts will be up 7% in 2021 and the number of units will grow 6% to 928,000 (Dodge basis). Historically low mortgage rates and a preference for less dense living during the pandemic are clearly overpowering short-term labor market and economic concerns.
- Multifamily construction, however, will pay the price for single family’s gain. The large overhang of high-end construction in large metro areas combined with declining rents will lead to a further pullback in 2021. Dollar value will drop 1% while the number of units started falls 2% to 484,000 (Dodge basis).
- The dollar value of commercial building starts will increase 5% in 2021. Warehouse construction will be the clear winner as e-commerce giants continue to build out their logistics infrastructure. Office starts will also increase due to rising demand for data centers (included in the office category) as well as renovations to existing space. Retail and hotel activity will languish.
- In 2021, institutional construction starts will increase by a tepid 1% as growing state and local budget deficits impact public building construction. Education construction is expected to see further declines in 2021, while healthcare starts are predicted to rise as hospitals seek to improve in-patient bed counts.
- The dollar value of manufacturing plant construction will remain flat in 2021. Declining petrochemical construction and weak domestic and global activity will dampen starts, while a small handful of expected project groundbreakings will level out the year.
- Electric utilities/gas plants will gain 35% in 2021, led by expected groundbreakings for several large LNG export facilities and an increasing number of wind farms.
The production of construction aggregates hit a bit of a wall as evidenced by the U.S. Geological Survey’s third-quarter report.
An estimated 707 million metric tons (Mt) of total construction aggregates was produced and shipped for consumption in the United States in the third quarter of 2020, a decrease of 5% compared with that of the third quarter of 2019, according to Jason Willett, commodity specialist for the U.S. Geological Survey (USGS).
The estimated production for consumption in the first nine months of 2020 was 1.82 billion metric tons (Gt), a decrease of 3% compared with that of the same period of 2019.
The estimated production for consumption of construction aggregates in the third quarter of 2020 decreased in seven of the nine geographic divisions compared with that sold or used in the third quarter of 2019. The five leading states were, in descending order of production-for-consumption, Texas, California, Missouri, Ohio and Michigan. Their combined total production for consumption in the first nine months of 2020 was 541 Mt, a slight decrease compared with that of the same period of 2019 and represented 30% of the U.S. total.
An estimated 416 Mt of crushed stone was produced and shipped for consumption in the United States in the third quarter of 2020, a decrease of 6% compared with that of the third quarter of 2019. The estimated production for consumption in the first nine months of 2020 was 1.10 billion Gt, a decrease of 3% compared with that of the same period of 2019.
The estimated production for consumption of crushed stone in the third quarter of 2020 decreased in eight of the nine geographic divisions compared with that sold or used in the third quarter of 2019. The five leading states were, in descending order of production for consumption, Texas, Missouri, Pennsylvania, Florida and Ohio. Their combined total production for consumption in the first nine months of 2020 was 382 Mt, a slight decrease compared with that of the same period of 2019 and represented 35% of the U.S. total.
The estimated U.S. output of construction sand and gravel produced and shipped for consumption in the third quarter of 2020 was 290 Mt, a decrease of 4% compared with that of the third quarter of 2019. The estimated production for consumption in the first nine months of 2020 was 719 Mt, a slight decrease compared with that of the same period of 2019.
The estimated production for consumption of construction sand and gravel in the third quarter of 2020 decreased in five of the nine geographic divisions compared with that sold or used in the third quarter of 2019. The five leading states were, in descending order of production for consumption, California, Texas, Minnesota, Michigan and Arizona. Their combined total production for consumption in the first nine months of 2020 was 266 Mt, a decrease of 3% compared with that of the same period of 2019 and represented 37% of the U.S. total.
Portland (including blended) cement consumption decreased by 3% in the third quarter of 2020 compared with that of the third quarter of 2019. Consumption in the first nine months of 2020 increased slightly compared with that of the same period of 2019.
The U.S. Census Bureau announced that construction spending during October 2020 – the most current report at press time – was estimated at a seasonally adjusted annual rate of $1,438.5 billion, 1.3% (±1.0%) above the revised September estimate of $1,420.4 billion. The October figure is 3.7% (±1.3%) above the October 2019 estimate of $1,386.8 billion.
During the first 10 months of this year, construction spending amounted to $1,189.6 billion, 4.3% (±1.0%) above the $1,140.4 billion for the same period in 2019.
The estimated seasonally adjusted annual rate of public construction spending was $344.8 billion, 1.0% (±1.6%) above the revised September estimate of $341.4 billion.
Highway construction was at a seasonally adjusted annual rate of $92.6 billion, 1.6% (±4.3%) above the revised September estimate of $91.2 billion. Educational construction was at a seasonally adjusted annual rate of $86.4 billion, 1.1% (±2.5%) above the revised September estimate of $85.4 billion.
Private construction spending was at a seasonally adjusted annual rate of $1,093.7 billion, 1.4% (±0.7%) above the revised September estimate of $1,078.9 billion.
Residential construction was at a seasonally adjusted annual rate of $637.1 billion in October, 2.9% (±1.3%) above the revised September estimate of $619.1 billion.
Nonresidential construction was at a seasonally adjusted annual rate of $456.6 billion in October, 0.7% (±0.7%) below the revised September estimate of $459.9 billion.
“The October spending report shows private nonresidential construction is continuing to slide,” said Ken Simonson, Associated General Contractors of America chief economist. “Public construction spending has fluctuated in recent months but both types of nonresidential spending have fallen significantly from recent peaks this year and appear to be heading even lower.”
Association officials said demand for nonresidential construction was unlikely to rebound in the near-term without new federal relief measures, putting additional construction careers at risk. These should include new investments in infrastructure, to improve aging roads and bridges, public buildings and water utility networks. Federal officials should refrain from taxing Paycheck Protection Program loans as it would undermine the benefits of that program. And Congress and the administration should work together to enact liability reforms to protect honest firms from frivolous coronavirus lawsuits.
“As long as the coronavirus undermines private sector confidence and public sector budgets, the only way to save good-paying construction careers is through new federal relief measures,” said Stephen E. Sandherr, the association’s chief executive officer. “Fixing the nation’s infrastructure, preserving the benefits of the PPP program and protecting honest employers will give the economy a much-needed short-term boost.”
“Excluding some of the emergency construction, such as temporary expansions to healthcare capacity, that transpired in October due to increasing cases of COVID-19, nonresidential construction spending actually declined for the month,” said Associated Builders and Contractors (ABC) Chief Economist Anirban Basu. “Spending weakness was broad-based but was especially apparent in private construction segments, such as lodging, office and power. Construction spending in the commercial segment has remained flat on a year-over-year basis, with spending on fulfillment center construction offsetting declining demand for the construction of stores. Commercial and institutional backlog is down 1.7 months since the beginning of the pandemic, according to ABC’s Construction Backlog Indicator, suggesting that declining commercial activity will eventually become apparent within the spending data.
“The near-term outlook is tilted toward the negative as the economic momentum that has been apparent since May begins to wane,” said Basu. “A near-term recession is possible, and perhaps even probable, as shutdown measures are renewed and the impact of previously implemented stimuli continues to fade. That will further delay the recovery of construction spending.
“The longer-term outlook is decidedly more upbeat,” said Basu. “At some point, there will likely be a combination of additional stimuli (including money for infrastructure) and widespread vaccine availability. Recent announcements by Moderna, Pfizer, Astra Zeneca and others have rendered it clear that COVID-19 can be soundly defeated. It is also likely that, at some point in 2021, the economy will take off. As air travel, restaurants and theaters begin to rebound, the recovery to come may be more impressive than the recovery that has occurred over the past six months. That should set the stage for better nonresidential construction spending dynamics in 2022 and 2023.”
Total construction starts fell 2% in November to a seasonally adjusted annual rate of $797.5 billion following a strong gain in October. Residential starts fell 7% during the month, while nonbuilding starts dropped 14%. Nonresidential building construction starts, however, rose 19% in November. Total construction starts fell in three regions, the South Atlantic, West and Northeast, but rose in two, the Midwest and South Central.
Starts for highways and bridges fell 26%.
Year-to-date through 11 months, total construction starts were 12% down from the same period in 2019. Nonresidential starts were 25% lower, while nonbuilding starts were down 16%. Residential starts, by contrast, were 3% higher through 11 months. In November, the Dodge Index fell 2% to 169 (2000=100) from the 173 October reading. The Dodge Index was down 24% from a year earlier and 6% lower than its pre-pandemic level in February.
“November construction starts were somewhat of a mixed bag,” stated Richard Branch, chief economist for Dodge Data & Analytics. “On the positive side, the gain in nonresidential building starts shows that the recovery from the early months of the pandemic remains on course. If not for the start of a very large bridge and tunnel project in October, nonbuilding starts would actually have posted a tepid gain in November. And despite the November decline in single family starts, tremendous positive momentum remains in the housing sector. There remains significant concern, however, about the ability of construction starts to maintain their current pace in the face of rising COVID-19 cases, the uncertain outlook for additional federal stimulus, and the lack of agreement on funding the federal government past Dec 18. While the near-term outlook for starts remains cloudy, the recent deployment of a vaccine in the United States raises hope and expectation that 2021 will be a better year.”
Nonbuilding construction tumbled in November, dropping 14% to a seasonally adjusted annual rate of $191.8 billion. November’s decline was mainly a response to the October start of the $3.6 billion Hampton Roads Bridge and Tunnel project in Virginia. November’s level of nonbuilding construction starts was actually higher than the monthly dollar value of starts during the July through September period. In November, environmental public works rose 48% while miscellaneous nonbuilding gained 61%. Starts for highways and bridges, however, fell 26% while the utility/gas plant category lost 59%.
The largest nonbuilding project to break ground in November was the $948 million Capline Marathon Pipeline, which is a 632-mile system that extends from Patoka, Ill., to St. James, La. Also starting in November was the $865 million I-275 Howard Frankland Bridge in Tampa Bay and the $524 million Northwest Water Treatment Facility in Wichita, Kan.
Through the first 11 months of the year, total nonbuilding starts were down 16% from the same period in 2019. Starts in the highway and bridge category were up 7%, while environmental public works were 6% lower. The miscellaneous nonbuilding category was down 31% on a year-to-date basis, while utility/gas plant category was 45% lower.
Nonresidential building starts moved 19% higher in November to a seasonally adjusted annual rate of $249.7 billion. The commercial sector increased 27% as two large office projects got underway. Gains were also seen in the hotel, warehouse, and parking structures categories. Institutional construction starts increased 17% over the month due to gains in healthcare and education. Manufacturing starts, meanwhile, fell 29% in November.
The largest nonresidential building project to get started in November was the $1.3 billion One Madison Avenue office project in New York. Also starting was the $940 million Richard Boulevard Office Complex in Sacramento, Calif., and the $615 million Baptist Healthcare Hospital in Pensacola, Fla.
Year-to-date through the first 11 months of 2020, total nonresidential building starts were down 25%. Commercial starts were 26% lower, while institutional starts were down 15%, and manufacturing starts were 63% lower.
Residential building starts dropped 7% in November to a seasonally adjusted annual rate of $356.1 billion. Single family starts fell 5% over the month and multifamily starts slipped 14%.
The largest multifamily building to break ground in November was the $175 million Simone Residential Tower in San Diego. Also starting in November were the $123 million Scotts Run apartments in Tysons, Va., and the $103 million Hanover Wellesley Residential building in Wellesley, Mass.
Through the first 11 months of 2020, residential construction starts were 3% higher than the same time period in 2019. Single family starts were up a healthy 10%, but multifamily starts were down 13%.
State Associations Weigh In
State associations are as close to the action as you can get, and the executive directors of those associations have varied opinions on 2021 from the perspective of their members and regions of the country.
“New York’s aggregate industry had a slow start as the pandemic began in March but recovered when the government declared construction an essential business,” said Dave Hamling, president and CEO, New York Construction Materials Association. “That was vitally important since New York’s construction season is typically only eight months long. Many of our members reported robust demand as the season progressed. The industry took safeguards very seriously, to the point that I’m not aware of any confirmed COVID cases related to aggregate, asphalt or concrete production.
“NYSDOT did a good job of delivering the capital program during 2020 – for which we are grateful,” Hamling said. “However, we are very concerned about 2021 and, particularly, out years. Both the federal and state governments have enormous COVID bills to pay and we will need to push hard to make infrastructure funding a priority to lawmakers.
“Though unrelated to the pandemic, producers are concerned with the makeup of our state legislature. The senate, assembly and governor’s house are controlled by Democrats, with veto-proof supermajorities in both houses. The progressive agenda put forth in 2020 will continue into 2021 and threatens to put our industry in jeopardy, particularly in terms of environmental regulation. New York has not been friendly to business and industry – and that is likely worsen in 2021 and beyond. In summary, New York’s construction materials industry weathered the COVID storm pretty well in 2020, but there are serious concerns looking forward,” Hamling concluded.
According to Douglas E. Needham, executive director of the Michigan Aggregates Association, Michigan is poised to spend more money on road repairs than ever before in 2021 because “we are consistently rated as having the worst roads in America, resulting in multiple funding initiatives,” he said. “Michigan’s 2015 road funding package will be fully implemented next year, and a new $3.5 billion state bonding program announced in January will result even more projects getting underway.
“COVID-19 has certainly been a concern to our industry. However, we adopted guidance from the CDC and other governmental orders to ensure we could continue to safely operate. The pandemic slowed the private markets at the beginning of year, but once Michigan was able to fully open up, the markets rebounded,” Needham continued.
“Thanks to our governor’s new bond selling program and our legislature for ensuring a fully funded transportation budget, Michigan is working hard to address our aging infrastructure. We are always ready to move forward,” Needham stated. “Michigan aggregate producers are working to meet the needs of Michigan markets, both under our current regulatory environment and by working to implement legislative reforms that would allow a much-needed expansion of aggregate mining in our state. This would inject more supply into the system and reduce costs in both the government and private markets. Our members are can-do people, allowing them to maintain an upbeat attitude during 2020. They are looking forward to a very vibrant and healthy 2021.
“While Michigan’s aggregate producers stand ready to address our state’s vast infrastructure needs in 2021, we are seeking reforms at the state level now to unlock access to aggregate supplies by removing the many roadblocks put in place by local units of government and NIMBY protesters,” Needham concluded.
“2021 is expected to be a promising year in which our industry will play a crucial role in rebuilding Illinois,” said Dan Eichholz, executive director of the Illinois Association of Aggregate Producers. “Transportation has always been the backbone of the Illinois economy and in 2019 Illinois made a major investment in our future by passing a capital plan funded by transportation fee increases which has roughly doubled the Illinois DOT’s annual construction budget.
“We expect to see construction begin throughout the state on many major projects funded by the capital plan in 2021,” Eichholz continued. “We are fortunate that our industry was appropriately recognized as ‘essential’ from the outset of the pandemic and operations continued throughout 2020 with most members reporting business as ‘steady.’ However, like most industries, we have been impacted. Recent Illinois DOT lettings have been less robust than anticipated, particularly in the Chicago area, due to a pandemic-related shutdown of the court system leading to a backlog of right-of-way clearances. In addition, 2020 motor fuel tax receipts have come in under projections. Without federal funding for state DOT’s to backstop revenues that have been lost due to the pandemic, the state could see some projects delayed.”
According to Steve Trussell, executive director pf the Arizona Rock Products Association, despite an unexpected pandemic, Arizona was prepared for a fiscal downturn it didn’t see coming. The state had approximately a billion dollars in the rainy-day fund. “That said, one might argue that most of this year would qualify as a ‘rainy day,” Trussell noted. “If you look back, the state had also identified sustainable funding sources for vital services such as education. Over the last half decade, Arizona has also increased dollars for priorities, while ensuring those programs are sustainable. In fact, in FY2004-FY2008 Arizona experienced an 11% average spending growth compared to FY2016-FY2020 when we saw only a 4.5% average spending growth in the state. Fiscal foresight and restraint played a key role in why Arizona is not suffering like other parts of the country.
“Since the pandemic began, state revenue collections have been much higher (20%) than anticipated and as many states consider drastic budget cuts, Arizona ended the most recent fiscal year with a $370 million surplus,” Trussell said. “Instead of cutting, Arizona is investing in key areas like K-12, by infusing an additional $440M for education in addition to funding already allocated in the FY2021 budget. That’s impressive given the current circumstances.
“While recent years have seen significant investments in specific areas of the state’s budget that are important to Arizonans, much of these expenditures were wisely handled with one-time spending, to avoid encumbering future legislatures with fiscal obligations. When it came time to pass the ‘skinny budget,’ in May of this year much of the previous one-time spending was not included. There was not a fight that legislators were cutting programs, as would have been the case if these expenditures were made ongoing. It is also notable that it was resolved by a bipartisan effort,” Trussell said.
“The one thing that has hurt Arizona in the recent election was the passage of Prop 208 or Invest in Education.” Trussell said. “This ballot initiative imposes a 3.5% surcharge (tax) on high income earners that equates to a 77% increase on the current rate that will cause Arizona to go from one of the most business-friendly states to uncompetitive for job creators depending on how they file their income tax returns.
“While we state Highway User Revenue Funds are higher than forecasted despite COVID, it is still not sufficient to meet the growing need in areas like Maricopa County,” Trussell said. “Additionally, since sales receipts are up the Regional Area Road Fund has been better than expected, but we are clearly in maintenance mode less one-time funding from the Arizona state legislature for one time transportation infrastructure projects.”
“In New Jersey we have definitely dodged the proverbial bullet,” said Bill Layton, executive director of the New Jersey Concrete and Aggregate Association. “Construction of all types from the very beginning of the pandemic has been open. While some projects have been impacted by the virus due to financing or market pressure for the most part New Jersey is chugging along.
“A few years back New Jersey passed an increase in our gas tax as well as an automatic cost of living adjustment every year. These changes put the Transportation Trust Fund on good footing providing funding for essential projects that have made the public side of construction extremely vibrant,” Layton said. “While COVID has been a devastating disease, the industry is optimistic that with the vaccine right around the corner 2021 will be a great year.”
“Ohio is fortunate to have implemented a motor fuel user-fee increase in 2019,” said Patrick A. Jacomet, executive director, Ohio Aggregates & Industrial Minerals Association (OAIMA). “We applaud the foresight of the governor, the ODOT director and the legislature leading to the important passage of this increase. Because of this additional funding, although Ohio was drastically impacted by reduced user-fee revenues due to COVID-19, it could have been much worse. The OAIMA board of directors and our members took a lead role in the passage of this increase through the formation of the ‘Infrastructure Funding Workgroup’ as well as their active engagement and lobbying efforts.
“ODOT has also been proactive and aggressive in budgeting for the decreased user-fee receipts,” Jacomet said. “The leadership of Director Marchbanks and the belt-tightening at ODOT has minimized the impact of reduced revenues. Although revenues on average have been down in 2020, primarily due to COVID-19, OAIMA members are ‘cautiously optimistic’ regarding the prospects for 2021 and overwhelmingly feel that additional funding is needed at both the state and federal levels. The majority of OAIMA associate members are projecting increase equipment orders in 2021, while just over 70% of our members anticipate additional hiring in 2021.”
“We are optimistic 2021 will be a better year compared to 2020,” said Nicholas S. Rodgers executive director, Kentucky Crushed Stone Association. “We are hopeful our legislature will pass an increase in the user fee to help increase revenue for Kentucky’s Road Fund.
“Kentucky has certainly been hit hard by COVID-19. The Kentucky Transportation Cabinet (KYTC) canceled the April and May highway lettings and suspended nearly 100 resurfacing projects. The highway lettings did restart very slowly in June and have gotten a little better as the economy slowly recovered but have not returned to a pre-COVID-19 economy,” Rodgers stated.
“Kentucky’s Road Fund does not have enough revenue to properly meet the needs set forth by the Kentucky Transportation Cabinet (KYTC),” Rodgers concluded. “The KYTC has identified nearly $900 million dollars in new revenue needed to maintain, repair and expand our infrastructure. The Kentucky state legislature convenes again on Jan. 5, 2021, for a 30-day legislative session where they will have the opportunity to address this issue and increase the revenue sources.”
“I’m cautiously optimist[ic] that the producers in North Carolina will do better in 2021 than 2020 because this year the pandemic created a financial crisis for NCDOT,” said Jasper G. Stem Jr., executive director of the North Carolina Aggregates Association. “Highway lettings were suspended for six months. Hopefully, the non-public sector will continue to be strong. The urban areas are doing well. Rural areas are holding on.
“Since the construction/aggregate industry was considered an essential business in North Carolina, our members never had to shut down,” Stem said. “They did have to implement additional measures to protect their employees. As I stated above, the NCDOT’s cash balance dropped below the minimum threshold earlier this year, so all lettings were suspended from April to September. By cutting expenses and managing their revenues, the NCDOT has been able build up the cash balance, so they should be in better shape going into 2021. Their revenues are currently running about 2% above their projections.
“Concerning the long-term financial outlook, the Secretary of Transportation in 2019 commissioned a blue-ribbon panel to recommend sustainable long range investment strategies that will provide the necessary resources to build and maintain North Carolina’s future transportation system. In mid-January, their recommendations will be presented to the General Assembly for their consideration With NCDOT getting their financial house in order this year and legislation that places some guardrails on NCDOT spending, 2021 will definitely be a better year for the highway construction industry.”
“Oregon had a busy 2020 construction season,” said Richard Angstrom, executive director of the Oregon Concrete and Aggregate Producers Association (OCAPA). “The governor’s executive order treated businesses differently than many other states. Oregon did not go down the ‘essential business’ route. The governor closed specific businesses and activities, but if it was not on the list she devised, a business was allowed to operate pretty much as usual with masking and social distancing considerations.
“Next year, 2021, OCAPA anticipates additional highway work from a state transportation revenue package passed in 2017, but the industry remains cautious on commercial development given spending pull back from COVID and Oregon’s ever increasing corporate tax structure. OCAPA’S biggest concern, from a high-level perspective, is whether Oregon’s government creates a supportive business climate to attract and retain businesses or it has created a system that represses business investment and disincentivizes business retention. If the state hasn’t crossed the line between the two considerations, it certainly is leaning toward the latter.”
“The producers have been through a lot of swings this year – adjusting to new circumstances, not knowing if they could continue to work, and then ultimately able to continue at a decent level. Our industry has been fortunate and able to supply material for a lot of important projects to improve roads, bridges, hospitals, and schools. Society will come back to a better built environment. While public works should keep us going in the near term, there are a lot of unanswered questions about how society may change from the pandemic and what this means for unmet needs of housing, and the future of building and school construction, and more,” said Robert Dugan, president and CEO of the California Construction and Industrial Materials Association (CalCIMA).
“We were fortunate that in 2017 California enacted SB 1, the Road Repair and Accountability Act. The SB 1 added $5 billion per year in revenue for state and local road and bridge repair and reconstruction. Over the past fiscal year, that money started to reach fruition in the form of new projects and expenditures. While revenues have been impacted slightly from less driving, it has yet to delay projects significantly and revenues seem to be ticking back up. We are fortunate, too, that a lot of counties have passed their own sales taxes for transportation, which helps keep projects moving.
“We are hoping for a relatively flat year trending down slightly,” Dugan said. “Despite recent health orders from the governor and county governments in response to surges in COVID-19 this fall, they have allowed construction and manufacturing activities to continue and therefore the supply chain, including the construction and industrial materials markets, to continue operating.
“Overall, it is anticipated that private markets on the construction side will continue to decline, but our primary revenue drivers for public works, specifically gas, sales and excise taxes have not been hit as hard as it was originally anticipated and the state’s transportation fund went into the downturn with a healthy reserve,” Dugan noted.
“More specifically, producers see a backlog and pipeline of projects coming on the first half of the year that will at least keep business activity near the past year. While public works seem solid, the housing and building markets are not as robust. There will likely be more activity in the urban coastal than the more rural inland areas. The main uncertainty is about the 2nd half of the year and the lasting impacts of the pandemic,” Dugas concluded.
“Aggregate producers in Georgia are positive about business in 2021,” stated Jeff Wansley, executive director of the Georgia Construction Aggregates Association. “The economy in Georgia is strong, thanks to our governor who kept the business climate up and running in our state. State revenues are on track and DOT projects are rolling out. New business is coming to Georgia as well.
“We are also encouraged by potential legislation in the Georgia General Assembly that will fund new freight and logistics projects in the state. The state legislature conducted a two-year study with the Ga Freight and Logistics Commission. This group will be releasing findings and recommendations that we hope will become positive infrastructure funding,” Wansley said.
“COVID-19 has been challenging in our industry and our state as it has all over the country. However, we are thankful that we have a pro-business government that has kept the ball rolling despite the terrible tragedy that the pandemic brought to our country. Compared to many states, Georgia ‘dodged a bullet’ as it relates to conducting business this year,” he said.
“Fortunately, Georgia’s DOT funding is not in dire straits. Funding mechanisms that support highway building have remained strong during the year,” Wansley stated. “The general mood among aggregate producers is positive in Georgia. There is the continued frustration of the constraints that COVID-19 places on people and businesses – and concessions you have to make for safety protocol, but most have pivoted and adapted to the new environment. As mentioned, we are in a pro-business state with strong leadership geared to staying the number one state in which to do business. The positive mood also permeates to our associate members who support our industry in Georgia. Many associate members have told me that they are having their best year on record.”
Other Economic Markers
- The Dodge Momentum Index fell 2.6% in November to 123.3 (2000=100) from the revised October reading of 126.5. The Momentum Index, issued by Dodge Data & Analytics, is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year. The institutional component of the Momentum Index fell 4.4%, while the commercial component lost 1.6%.
- Annual U.S. GDP growth for 2021 is forecast at 4.7%, according to the 2021 Equipment Leasing & Finance U.S. Economic Outlook released by the Equipment Leasing & Finance Foundation. While equipment and software investment is forecast to grow 7.8% (annualized) in 2021, some industries will likely continue to struggle under the weight of the pandemic until a vaccine is widely available.
- The U.S. manufacturing sector recovery continued in late 2020. Shipments and new orders of core capital goods rose to record levels as firms in several industries responded to elevated demand. Though output is relatively close to pre-pandemic levels, manufacturing employment remains significantly depressed.
- The Federal Reserve remains committed to keeping interest rates at or near zero for several years. The Fed also intends to continue its liquidity-boosting measures, though its officials have stated that monetary policy alone is likely insufficient to prop up the U.S. economy.
- The Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor, which is released in conjunction with the Economic Outlook, tracks 12 equipment and software investment verticals. It predicts that construction machinery investment growth should rebound; materials handling equipment investment should return to positive growth; and mining and oilfield machinery investment growth should improve from current levels but may remain in negative territory.
- Seasonally adjusted construction employment in November trailed pre-pandemic February levels in 35 states and exceeded them in 15 states and the District of Columbia, according to AGC’s analysis of Bureau of Labor Statistics (BLS) data.
- The National Association of Home Builders forecast is for ongoing gains for single-family construction in 2021, though at a slower growth rate than in 2020. Remodeling will remain strong as people continue to upgrade existing homes. The multifamily construction market will experience weakness as rent growth slows and vacancy rates rise. However, the development market should stabilize by 2022.