3-5-17
Infrastructure work does not normally grow in leaps and bounds.
Seldom does infrastructure construction spending grow by more than $10 billion in a year. Rarely does it grow by more than $20 billion.
Currently at about $300 billion a year, infrastructure represents only about 25% of all construction spending. The infrastructure sector is comprised of the longest duration type projects such as energy, highway/bridge, transportation terminals, railway and water/waste water resource development. It is not unusual for projects to take four to five years to reach completion.
Increasing new construction starts by $40 billion for new infrastructure work in any given year on average might add only $8 to $10 billion in spending in each of the next four or five years. To increase spending by $10 billion a year we would need to increase new starts by $40 billion every year. We’ve only ever come close to adding $40 billion in new starts once, in 2015.
In 2015, new infrastructure starts increased by $38 billion or 27%, due to an increase of $13 billion in new power generation plants and an increase of $21 billion in new LNG plants and port facilities. That will keep infrastructure spending growth elevated throughout 2018 and 2019. Measuring a total increase of 250% in power projects, that is a scenario unlikely to be duplicated in coming years.
2017 spending comes from: 10% 2014 starts; 35% 2015; 35% 2016 and 20% new starts in 2017.
Although new infrastructure starts were down in 2016 and are expected to decline again in 2017, the amount of work in backlog at the start of 2017 is the highest its ever been and spending in 2017 is forecast near the all-time (2015) high. Spending in 2018 from backlog will increase again and 2018 will hit another all-time high. There are no annual declines in spending predicted for the next four years. Some very large public infrastructure projects that started in 2014, 2015 and 2016 still contribute large amounts to spending in 2017 and well into 2018.
Increasing infrastructure spending by $10 billion a year would require adding about 35,000 to 40,000 new construction jobs per year. To accommodate all growth since the recession bottom, this sector averaged adding only 20,000 new jobs per year. Current spending growth is predicted to add $40 billion in work over the next three years and this will absorb all new heavy engineering jobs growth. The non-building infrastructure sector does not have the capacity at this time to increase spending by another $10 billion/year over its current growth rate, nor does it have the capacity to add an additional 40,000 jobs per year.
This summary of current projected spending does not include any future infrastructure work that might be generated from a proposed $1 trillion spending plan.
It is important to note here that 90% of all work in the power sector is private work. Only 60% of infrastructure work is publicly funded. However, some nonresidential building is publicly funded.
Public spending is not all public works projects.
Most public work is infrastructure, or public works projects. However, not all infrastructure is public work. The power market is the largest infrastructure market. But, already noted above, power work is mostly private. So the market responsible for one third of all infrastructure work is 90% private. Educational projects, typically considered nonresidential buildings, are 80% public and 20% private.
The two largest markets contributing to public spending are highway/bridge (32%) and educational (25%), together accounting for 57% of all public spending. The next largest market, transportation, is only about 10% of public spending.
Highway/bridge work fluctuates the most with large monthly swings up or down. However, 4 out of 5 times over the last 12 years, any large monthly move up or down was accompanied by a partially offsetting opposite move the following month. Highway spending hit an all-time high in 2015 and again in 2016.
Two of the three largest annual growth increases ever recorded in public spending were driven by educational spending. In the third largest growth year, highway just barely edged out educational spending for the top spot.
If educational work were to be considered part of future infrastructure expansion, then the maximum capacity to increase public infrastructure spending obviously increases. Together with other public works projects this could potentially provide a large enough market base to increase public infrastructure spending by $10 billion a year over and above the growth already in backlog or anticipated. But most of the added work would need to be to the education market. Even with potentially adding educational market work to the infrastructure expansion plan, the hope of expanding infrastructure spending by another $10 billion/year remains difficult at best.
Any increase to future work needs to be considered as over and above the spending growth patterns already due to work in backlog and new starts anticipated. This plot of predicted public spending does not include any future infrastructure work that might be generated from a proposed $1 trillion spending plan. About 80% of all spending in 2017 is already in backlog. About 50% of all the spending from Jan. 2018 through Jan. 2020 will already be in backlog by Jan. 2018.
Construction Analytics 