Heavy construction to see moderate growth
By Judi Marcelonis -- Industrial Distribution, 8/1/1998
Our last forecast predicted that the heavy construction sector would be the fastest growing market of the construction industry in 1998. However, newly released data reveals that recent nonbuilding construction growth has slowed precipitously.Furthermore, favorable building conditions in the housing sector, which has boosted housing starts to phenomenal levels, combined with healthier growth in nonresidential construction, has required us to revise our outlook for the heavy construction market this year. Total nonbuilding construction will no longer lead the pack in terms of growth, yet spending will expand a respectable 2.6% to $122.6 billion for all of 1998.
Following two months of strong increases, heavy construction spending was nearly unchanged in March while April posted a disappointing 1.7% decline, compared to year-ago figures. Flourishing activity earlier in the year helped to offset the more recent weak performances to push year-to-date total nonbuilding construction through April up 2.6% over levels in the same time period a year ago. This moderate gain was powered by the robust growth in the private sector.
Private nonbuilding construction experienced three consecutive double-digit increases this year, which catapulted first quarter spending 14.5% over the same time period in 1997. April's 1.7% decline came as a surprise, given the extraordinary gains recorded in the previous months. Yet, private nonbuilding construction through the first four months of the year remains a hefty 9.8% above year-ago levels.
Both telecommunications spending and utilities construction have fueled private spending growth. Market demand for new and faster technologies has kept telecommunications construction activity thriving. With April's 6.1% increase, spending in the January to April period was up 8.8%. Meanwhile, in the same time period, utilities construction spending surged 10.3%. Although the momentum will dissipate in both sub-sectors as the year progresses, combined they will boost total private heavy construction to $43.4 billion, a vigorous 6.9% increase, by the end of 1998.
Public spending has heeded to our forecast, as spending for the first four months of the year dipped 2% below year-ago levels. However, spending in public's highways and streets sub-sector has bucked this downward trend, with the latest increase registering 2.8% in April.
Senate approval of the six-year Intermodal Surface Transportation Efficiency Act has assured transportation infrastructure development in 1998. Hence, we expect that by the end of the year, highway construction spending will register a 3.7% increase.
HEAVY CONSTRUCTION OUTLOOK
Billions of $ Annual % change
1997 1998 1999 1997 1998 1999
Total Nonbuilding Construction 119.4 122.6 124.9 3.5 2.7 1.9
Total Public Nonbuilding 78.8 79.2 81.5 5.3 0.6 2.9
Highways & Streets 41.1 42.6 44.4 8.9 3.7 4.1
Water/Sewer 16.0 15.4 15.7 -0.5 -4.0 2.1
Other 21.6 21.2 21.4 3.1 -2.0 1.3
Total Private Nonbuilding 40.6 43.4 43.4 0.2 6.9 0.0
Telecommunications 11.9 12.2 12.1 -0.9 3.2 -1.0
Utilities/Other 28.8 31.2 31.3 0.7 8.4 0.4
Source: U.S. Commerce Dept. Forecast: Cahners Economics
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