NPCA Staff Report
While much has changed in Washington D.C., for now, much remains the same with regard to the construction industry. And for the precast concrete sector in 2017, that’s not bad news. The fundamentals are in place for a return to moderate growth next year after what appears to be a fairly flat year in the construction industry in 2016.
While 2017 could be a fairly normal year, beyond that the picture quickly grows complicated. Precasters – and the entire construction industry – would certainly benefit from a massive public works bill to rebuild the country’s aging infrastructure. But for the 2017 forecast, we are assuming that any work would come in 2018 at the earliest. Based on comments from both sides of the aisle, Congress may be open to a bipartisan bill that would help break the gridlock – and an infrastructure bill would be something that members of both parties could get behind. However, there are still a large number of fiscal conservatives in Congress who don’t believe the country should be spending additional money on infrastructure right now. And the leaders in the House and Senate have made it known that an infrastructure bill, while important, is not a top priority.
How to pay for it
The new administration and Congress may be talking a lot about infrastructure in the first half of 2017, but the nuts and bolts of crafting a bill and agreeing on how to pay for it will take time. It may be years before a bill is passed, projects are designed and bid, and contractors are ordering precast from your plant.
That may be a topic for Precast Forecast 2018. But in 2017, NPCA is forecasting a modest 2% to 3% increase in revenue for the precast concrete industry, which we define as all precast elements, prestressed concrete, reinforced pipe, architectural precast and the broad category of “other.” Using this global definition of the scope of the industry and data from the annual NPCA Benchmarking Report, we expect total precast sales to grow from a projected $23.3 billion in 2016 to nearing the $24 billion figure for 2017.
If that forecast holds true, it would be the sixth-straight year of growth after the precast industry lost about 40% of its sales volume during the Great Recession. Recovery to the $24 billion range would put the industry at about 87% of the high water mark, which occurred in 2007 with $27.5 billion in sales.
“The opportunities look quite positive for continued growth in the coming years,” said Ty Gable, NPCA president. “Next year we could see more of a continuation of the orderly growth we’ve had the last several years.”
FAST Act hits the street
Optimism stems from a few key areas but is tempered by late-year budget maneuvers by Congress. When Congress passed the “Fixing America’s Surface Transportation Act” in late 2015, it authorized $305 billion over five years for transportation infrastructure planning and investment. The FAST Act guaranteed a five-year funding window that triggered large highway projects which are now just getting started. According to Gable, the effects will begin to be fully realized in 2017.
“It takes a solid year before that type of funding actually makes its way to the construction site,” he said. “The FAST Act didn’t help much in 2016, but we’ll definitely see the benefits in 2017 and beyond.”
But it may not happen right away. As of mid-December, FAST Act funding increases passed last year were not included in the continuing resolution to fund the government through the end of April 2017. That means projects that could have started now would be on hold – at least through the first four months of the year.
As of mid-December, though, prospects still looked good for passage of the Water Resources Defense Act, a bill that includes funding to repair failing water and wastewater infrastructure, with projects administered by the U.S. Army Corps of Engineers. WRDA funding would create a wide scope of projects throughout the country that will result in a host of opportunities for the precast industry, although most of the activity would likely come in 2018 and beyond.
A host of local transportation ballot measures also passed in the fall elections, creating additional long-term opportunities for precasters. The American Road and Transportation Builders Association tracked 280 transportation funding ballot measures in the 2016 election, 69% of which were passed. ARTBA estimates the additional investment at $201 billion in the coming years. By far the largest investment came from California voters, who approved $133 billion in transportation ballot measures. That includes a 40-year, $120 billion measure to fund local road, bridge and transit projects through a 1 cent sales tax in Los Angeles, according to ARTBA.
The NPCA Benchmarking Report divides the precast concrete industry into six major product groups: building and landscaping, sanitary and stormwater, transportation, utility and industrial, water and wastewater, and other. Sales increased in every product group between 2014 and 2015. Total revenue was expected to hold steady or rise slightly in 2016.
“In 2017, we had anticipated a sizable bump in transportation products – somewhere in the 5% to 7% range,” Gable said. “The delay in FAST Act funding will probably decrease that estimate by a few percentage points. We also expect revenue to increase in the other product groups at a similarly modest level of 2% to 3%.”