U.S. Infrastructure Market: Will It Jump-Start the Economy? Scott Hazelton Director, Construction Advisory Services May 21, 2009
Infrastructure Spending: Where Does it Go? Other Power, 6.9% 2008 Shares Highways & Streets, 32.3% Electric Power, 25.3% Water, 8.3% Sewer, 12.6% Other Land Transportation, 8.0% Water Transportation, 1.2% Air Transportation, 5.5%
The Reinvestment Act of 2009 $789 billion stimulus package passes through Congress Nearly $125 billion is allocated for Construction and Infrastructure projects Highway & Streets $27.5 Transportation $20.6 Power & Communication $24.2 Water & Sewage $14.0 Government & Communities $27.4 Housing Development $12.9
Distribution of Stimulus Expenditure (billions $) 150 Stimulus spending has biggest impact in 2010 30 100 20 50 10 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 0 Cumulative Spend Annual Spend
Total Infrastructure Market Excluding Power 120 8 105 4 90 0 75 Stimulus creates absolute growth only in 2010-4 60 2004 2006 2008 2010 2012 2014-8 Total Expenditure % change (right)
Construction Outlook for Vertical Infrastructure 100 90 Federal spending on public buildings avoids worse decline 10% 80 billions of $ 70 60 50 40 30 5% 0% % change 20 10 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014-5% Total Infrastructure % change (right)
Stimulus Will Mitigate Downturn for Public Education and Health Care 60% 50% 40% 30% Institutional spending weathers this downturn better than previous ones 20% 10% 0% -10% -20% -30% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Public Healthcare Public Education
Construction Outlook for Horizontal Infrastructure 240 Federal spending plugs the gap in state and local funding for 2010 and 2011 16% 180 12% billions of $ 120 8% % change 60 4% 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0% Total Infrastructure % change (right)
Highways See Significant Boost from Stimulus Package, Next Year 15% 10% Stimulus spending also mitigates downturn in other transportation segments 5% 0% -5% -10% -15% 1994 1995 1996 1997 1998 1999 2000 2001 Highways & Streets 2002 2003 2004 2005 2006 2007 Other Land Transportation 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
But The Biggest Impact is on Quick Turn Projects 25% 20% Asphalt will be a winning industry 15% 10% 5% 0% -5% -10% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Highw ay & Streets Pavem ent Bridge
Once Stimulus Fades, A Return to Slow Growth 50% 40% 30% 20% The U.S. will continue to under-invest in infrastructure 10% 0% -10% -20% -30% -40% 1994 1995 1996 1997 1998 1999 2000 2001 2002 Water Transportation 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Air Transportation 2013 2014 2015 2016 2017 2018
Sewer and Water Need to Catch Up from the Housing Boom 20% 15% Water construction in particular did not keep pace with home construction 10% 5% 0% -5% -10% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Sew er 2006 2007 2008 Water 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Communications and Other Power Remain Cyclical Segments 70% 60% 50% 40% Minimal stimulus spending in these segments leave them recession sensitive 30% 20% 10% 0% -10% -20% -30% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Communications 2004 2005 2006 2007 2008 2009 Other Pow er 2010 2011 2012 2013 2014 2015 2016 2017 2018
The Power Market Takes A Deep Dive (Percent change from a year earlier) 30 20 The power plant building boom is over 10 0-10 -20-30 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total excl Pow er Pow er
A Net Reduced Demand for Electric Power Electricity demand growth has been slowing Growth slowed from close to 2.5% during the 1990s to about 1.5% during this decade; between now and 2030, it will average 1.0% per year Slowing population growth affects residential and commercial demand Non-core residential and commercial uses are expanding Residential and commercial appliance standards are tightening Industrial demand growth affected by slow output growth States are establishing Efficiency/Electricity-Reduction Programs Obama has aggressive Electricity-Reduction Targets
A Subdued Outlook for New Power Plant Construction Net Generating Capacity Additions (net annual additions, gigawatts) 60 50 40 30 20 10 0-10 1991 1993 Conservation and uncertainty over public policy rule the short term 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029
Renewable Power Sources Are the Future Net Generating Capacity Additions by Fuel Type (gigawatts) 250 200 150 Public policy on renewable energy overtakes once cheap natural gas as the driver for future generation fuel choice 100 50 0-50 Coal Natural Gas Oil Nuclear Renewable 2007 vs. 1995 2030 vs. 2007
State Appropriations for Construction & Infrastructure Projects
State Appropriations as a Share of Total Construction (between 2009 12)
Canadian Stimulus & Infrastructure Canada s Economic Action Plan calls for CN$ 11.83 billion (US$ 9.78 billion) in infrastructure stimulus between 2009 10 CN$ 4 billion for the Infrastructure Stimulus Fund An additional CN$ 1 billion to accelerate the payments under the Provincial/Territorial Base Funding Initiative The remaining funds will be prioritized (CN$ millions): Highway & Streets CN$ 37 Transportation CN$ 453 Power & Communication CN$ 600 Water & Sewage CN$ 165 Government & Communities CN$ 4,539
Implications for Your Business Stimulus package prevents a worse outcome for 2009, but is insufficient to create growth Stimulus spending is sufficient to create growth in 2010, even with reduced state and local capital budgets Stimulus spending is skewed toward quick reaction projects that benefit certain commodities, e.g. asphalt more than steel Improving economic fundamentals will offset reduced stimulus spending to maintain solid growth in 2011 In the long run, infrastructure spending returns to the anemic average growth of the past decade Power, particularly electricity generation, will be the weakest performing segment for several years
Thank you Scott Hazelton Director, Construction Advisory Services Scott.hazelton@ihsglobalinsight.com