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Public Works, Utilities & Manufacturing
Turning to the public works sector, Murray said that “on balance, we are seeing an improved state and local government funding picture.” At the federal level, a $10.8 billion “patch” to the Highway Trust Fund passed by Congress last July will provide funding support for projects through May 2015. Major highway and bridge projects currently underway include the $2.8 billion Tappan Zee Bridge Replacements in Tarrytown, NY and $1.6 billion in Ohio River bridge work in the Kentucky-Indiana area.
Meanwhile, pipeline work is currently in a “pause” period, after experiencing a 50% drop in 2013 (See Slide 17):
As for U.S. electric utilities, Murray said that after new utility starts reached a record high in 2012, the sector has now entered another downturn phase. Capacity utilization was down to just 79% in 2013, from 87% in 2007, due to the uptick in new plant construction. Gas-fired plant construction cratered in 2013, down a whopping 89% from the previous year. Construction of alternative energy plants had been very strong over the past few years, but contractors saw back-to-back decreases of 33% and 35% in 2012 and 2013, respectively.
McGraw-Hill characterized 2013 as a “mixed” year for the manufacturing construction sector – the volume of new square footage was down, but dollars spent increased. Thus far in 2014, square footage is up 4% and spending is up by 34%. The upward trend for both metrics is expected to continue.
“We are seeing a boom in [construction of] chemical and petrochemical plants,” Murray said. Unfortunately, most projects are in low-union density areas in Texas and along the Gulf Coast. These include two Chevron Phillips mega-projects: the ethylene cracker plant in Baytown, Texas and a polyethylene plant in Old Ocean, Texas; each is valued at $3 billion. Other major jobs underway include CF Industries’ fertilizer plant and warehouse in Sioux City, Iowa ($1.6 billion) and a $1.2 billion propane dehydrogenation facility in Alvin, Texas.
Outside the chem/petrochem sector, several large manufacturing construction projects got underway in 2014, including the Yokahama tire plant in Mississippi ($290 million), the Flint Assembly Paint Shop in Flint, Mich. ($200 million) and the Baxter plasma fractionation plant in Covington, Georgia ($500 million). Capacity utilization in the manufacturing sector is currently at 78% — “Not great, but better than what we had back in 2009,” Murray said. “I think prospects for manufacturing over the next two to three years are looking fairly positive.”
The Big Picture
In terms of the macroeconomic picture, McGraw-Hill’s working estimate is for GDP to grow at around 2.1% this year and 3.1% in 2015. Murray characterized the recovery as “subdued…periods of moderate expansion have been followed by deceleration.” But there are several bright spots, including healthy corporate profits and the fact that Congress has thus far avoided a debt ceiling battle.
“Overall, activity is continuing to move upward in fits and starts…It’s been a very hesitant recovery so far, and I don’t see it changing that much,” Murray said, using the phrase “mixed bag” to characterize growth in 2014. “The hope for 2015 is that it will become a more broad-based recovery,” particularly for the manufacturing, institutional and commercial buildings sectors.
“I’m more positive right now than I have been in the last two to three years,” Murray concluded. “In some ways, the cyclical upturn in the rate of expansion is mirroring what happened in the 1990s – a second-stage kick came in the latter part of the decade due to the Internet boom. If we get a second-stage kick this time, hopefully it will come from the energy sector.”
Long-term, Murray said that McGraw-Hill foresees the pickup in construction activity to continue through 2016 and 2017, followed by a pullback in 2018 and 2019.
Check out Bob Murray’s complete PowerPoint presentation here.