Winter 2002 

Highway construction spending is now expected to decline 0.6% in 2002 after a 7.5% gain in 2001.  Then spending growth rises to 5.6% next year as weather delayed projects are completed and Congress adds more money to Highway Trust Fund authorizations. The warm winter gave this year a quick start before funding uncertainty stalled spring and summer spending.  Securing extra money is more difficult when the anticipated federal surplus of over $100 billion has turned into a $150 billion plus deficit state and local government surpluses have shrunk sharply and competition with transportation security has become more intense.  Expect some slight of hand by Congress and a full pipeline of authorized projects to keep spending expanding modestly until the new funding bill arrives in a year. It is unlikely that Congress will provide as large a spending boost as they did with the soon to expire five-year spending bill.  But the economy will be progressively expanding as the highway funding debates continues over the next year.  The current, very pessimistic, Congressional Budget Office economic growth assumptions should be raised in time to permit substantial growth in the new funding bill.

The cost outlook has improved since June.  Credit 40-year low interest rates and unusually high labor productivity this early in a business expansion. Construction material costs are expected to rise only 0.6% in 2002 and 1.4% in 2003 with the pace of inflation nearing 2% by late next year as economic growth accumulates and import costs begin to rise with the falling dollar. Equipment prices, as always, lag with a price rise of only 0.7% expected next year.  Oil dependent prices should rise, but only modestly, through the end of 2003.

Employment is now rising slowly but so far at only about 1/3 of the jobs needed to start reducing the number of unemployed. Ignore the August fall in the unemployment rate from 5.9% to 5.7%.  It was a statistical fluke that will get revised away.  The buyers’ market for semiskilled labor will continue through yearend.  But the improving economy will gradually tilt bargaining power to job applicants in most regions before the end of the next warm weather construction season.  Markets will not be tight enough for widespread labor shortages but expect to raise wages more than in the previous few years. By then, manufacturing, trucking and possibly building contractors will be also hiring more workers. Regionally, expect the tightest labor markets in the Great Lakes and Plains states next year with tightening market also in New England, Rocky Mountain and the South Atlantic regions. The Pacific, Southwest and Gulf Coast regions should still be buyers’ markets.

ROAD MARKET OUTLOOK