Matter of trust

Since the doldrums of the recession caused by the subprime mortgage crisis, contractors and subcontractors serving the building industry have been on the lookout for a soaring rise in construction spending levels.

That surge in activity has never happened, although early 2014 seems to have at least brought about reliably positive indicators that the construction sector is finally recovering and poised to grow a little more in ensuing months.

Separately, public spending on highways received a temporary boost with the 2009 American Recovery and Reinvestment Act (ARRA, also known as the stimulus plan). Since 2010, it has subsequently languished depending on the status of federal highway spending and the health of transportation department budgets in each of the 50 states.

Throughout 2014, highway project planners and paving contractors will be keeping an eye on whether bipartisan support can coalesce in Washington around a long-term plan to finance the federal Highway Trust Fund (HTF), although many signals are positive.

Paving contractors and producers of recycled concrete and asphalt are encouraged by the forward momentum. However, they will most likely have to wait through the spring and summer to hear encouraging words about a bipartisan compromise on the HTF.
 

Encouraging words

The American West, as portrayed in the song “Home on the Range,” is a place “where seldom is heard a discouraging word.”

However, recycled aggregates producers there, as in the rest of the country, had plenty of discouraging words to say from 2008 to 2012, when a lack of activity caused existing stationary plants and fleets of portable crushers to scramble to compete for a sparse amount of work. As well, producers of concrete and asphalt crushing services who managed to land project work often ended up with unsold stockpiles of material.

As the long winter of 2013-2014 turns to spring, one recycled aggregates producer in that region is optimistic that the spring and summer of 2014 is bringing with it a better market for recycled aggregates.

“Our area recently has been significantly positively impacted by the oil and gas business,” says Rick Givan, manager of special projects with Denver-based Fiore & Sons. The company’s operating area includes Colorado and other states in the Rocky Mountains and Great Plains region, including the oil-rich Dakotas.

Additionally, says Givan, Denver has been “blessed with a heavy infusion of light rail and HOV (high occupancy vehicle) lane projects.” These transportation projects in the home town of Fiore & Sons help the company procure new crusher feedstock and also absorb material from the company’s stockpiles.

The Fiore & Sons operating region in the Western U.S. also is home to a roster of projects stemming from serious flooding that occurred in 2013, notes Givan. “Colorado is recovering and it has entailed major civil projects involving road and canyon restoration,” he comments.

As of late spring 2014, Fiore & Sons “is still doing projects” related to the rebuilding. These factors added together means “our heavy civil highway sector has come back,” states Givan.

Among the signs of the comeback in the West is that “equipment and personnel are starting to run short,” says Givan. “I won’t say that’s the case in crushing because there had been excess capacity, but it is for machines like scrapers, dozers and graders. There are shortages out West of these machines.”

In the recycled aggregates sector, the rebound should help soak up the excess equipment capacity and existing stockpiles, says Givan, who predicts “stable prices” in the region. “We’ve had a long, long dry period of excess accumulation. I don’t anticipate turning this market around that quickly. In the next couple of years we might get close to being back in balance. Most operators already have huge stockpiles of asphalt and huge stockpiles of crushed concrete.”

A crushing plant operator in the Northeast, who prefers to remain anonymous, says he likewise sees the summer of 2014 being busier than the previous five summers, and he is hopeful he can cut into his stockpiles. “I’ll keep seeking work, but it would be nice to end the year with less inventory than we started with,” he comments.

On the demolition side of the equation, Fiore & Sons produced some 33,000 tons of crushed concrete and asphalt stemming from its St. Anthony Hospital project in Denver in 2013. (See the article “Neighborhood renewal” in the January-February 2014 edition of Construction & Demolition Recycling.)

The 2014 demolition calendar is still shaping up, says Givan, but he says Fiore & Sons is seeing an increased number of bids being put out for hotel and restaurant demolition and rebuild projects relative to the previous leaner years.

If the 2014 spring and summer highway and demolition seasons shape up the way he anticipates, Givan says it will provide some much needed good news in the recycled aggregates sector.

Statistics gathered by government agencies point to an overall healthier construction sector while transportation spending may benefit from a desire by both political parties in Washington to appear to have accomplished something in 2014.
 

On the job

Sector-specific employment data is one of the critical yardsticks measuring the health of the construction industry and, by that measure, early 2014 is showing positive signs of better health.

U.S. Department of Commerce statistics gathered and analyzed by the Associated General Contractors of America (AGC), Arlington, Va., have pointed to increased construction sector employment in the majority of metropolitan areas in early 2014.

The year started off with one of the more upbeat AGC reviews of a 30-day period since the onset of the subprime mortgage crisis. Between January 2013 and January 2014, construction employment expanded in 195 metropolitan areas, while being flat in another 54 and declining in 90 market regions.

“It is a sign of the continued strengthening of the construction industry that nearly 60 percent of metros added construction jobs from a year earlier despite the severe winter conditions in much of the country this January,” remarked Ken Simonson, the AGC’s chief economist, when the figures were announced.

Thirty days later, when February 2014 figures were announced, the momentum was slowed somewhat but by no means reversed. Between February 2013 and February 2014, construction employment expanded in 175 metro areas, was flat in 58 and declined in 106.

“It is encouraging that contractors added workers in so many locations despite severe weather that delayed some project starts,” said Simonson. In analyzing both January’s and February’s figures, Simonson also expressed words of caution.

“The industry’s recovery has a long way to go, with only a smattering of metro areas exceeding their previous peak January levels of employment,” Simonson commented when those figures were released in March.

When analyzing the February numbers, Simonson referred to an imbalanced construction sector recovery. “It’s clear that the upturn in construction is far from universal. Activity is flat or declining in many metro areas, while contractors in the hottest locations are having trouble finding skilled workers.”

AGC CEO Stephen E. Sandherr has voiced concern that the forward momentum will be slowed unless elected leaders in Washington can agree on a highway spending strategy. “The industry is slowly digging itself out of a construction employment hole that got pretty deep during the past few years,” says Sandherr. “If Congress and the Obama Administration can’t figure out a way to address highway funding shortfalls very soon, that hole is only going to get deeper.”
 

Avoiding a bumpy road

Figurative gridlock between the two political parties in Washington is threatening to create literal gridlock on highways across the country, according to backers of bills to fund the federal HTF.

In mid-April, U.S. Secretary of Transportation Anthony Foxx told assembled media correspondents and workers at an Ohio factory that the HTF would run out of money by September 2014 if Congress did not bring forward a funding bill for President Obama to sign by that time.

The Obama Administration is backing a $302 billion plan that it claims offers a better path forward than annual “top-offs” that have lately been provided by Congress.

Any new bill passed in 2014 will replace the expiring MAP-21 (Moving Ahead for Progress in the 21st Century Act) funding and authorization bill, which expires in September.

In MAP-21 and previous acts, the HTF has been funded largely by the federal gasoline tax. That tax has remained at 18.4 cents per gallon since 1983.

One of the proposed HTF funding methods is to increase the gasoline tax. Although tax increases seldom garner popular support, raising the gasoline tax has a surprising number of backers. While environmentalists and other advocates of fuel conservation are among the backers, so are the U.S. Chamber of Commerce and the American Trucking Association, Arlington, Va., both of whom see benefits in the form of improved highway safety and maintenance as well as construction spending and employment.

Whether it involves increasing the gasoline tax or some other combination of taxes and fees, compromising on a method to fund the HTF will be a critical chore facing Congress in the late spring and summer of 2014. An inability to compromise will likely affect the recycled aggregates market sooner rather than later.

An April 2014 article in Better Roads magazine portrayed several state departments of transportation (DOTs) as prioritizing projects in advance, sorted between those to be funded before the HTF dwindles away and those that will have to wait.

While several advocates (led by industry trade associations in the paving and construction sectors) clamor for long-term stability for the HTF, one former U.S. Secretary of Transportation has predicted more of the same from Washington.

Ray LaHood, a former Republican congressman who was Secretary of Transportation from 2009 to 2013, predicted in the political magazine the National Journal that on or around Sept. 30, 2014, as MAP-21 expires, Congress will “pass an extension of MAP-21” and will “take some money out of the general fund. They’ll limp through the election, and then I don’t know what will happen after that.”

Unfortunately for highway project planners and contractors who would prefer longer-term stability, LaHood’s forecast points to a set of crutches helping the road building sector limp forward but no groundbreaking procedure that will help the sector run at full speed.

The author is editor of Construction & Demolition Recycling and can be contacted at btaylor@gie.net.