We are maintaining our positive outlook for the US construction sector to return to growth in 2012. Following a seven-year recession in the industry, we anticipate positive year-on-year (y-o-y) real growth of 0.9%, driven by investments in the energy and utilities sector, as well as a revival in the residential construction sector. The US construction sector will return to growth in 2012, with data on construction spending aligning with our long-held view that 2012 will be the year the US construction sector emerges from recession. Construction spending was up 6.7% in the first four months of the year, with construction industry employment up 1% in the first five months of the year, indicating that a sustained recovery is under way. We believe growth will be driven by investments in the energy sector and residential construction, as well as a bottoming out of the non-residential building sector. Energy Booming Growth in the infrastructure sector is being driven solely by investments into the energy sector, specifically power plants and transmission grids, and oil and gas pipelines. The combined segments have seen investment pick up by 20% y-o-y in the first four months of 2012, building on the strong growth performance seen in 2011. We believe this will drive power plants and transmission grids industry value by 7.6% y-o-y in 2012, with oil and gas pipelines industry value to grow by 3.9% y-o-y. The power sector is seeing significant investment into wind and solar projects, as plans pushed through before the expiry of incentives in late 2011 enter construction. We do expect this effect to wear off soon, as already the number of new renewable projects in the pipeline is declining as a result of incentive uncertainty. Transmission line projects on the other hand, including those serving new renewable capacity, are also driving growth. A number of billion dollar plus projects are in the pipeline either in the north east or in the South, supporting the influx of new capacity expected. We are expecting a notable rise in investment into new oil and gas pipelines, as natural oil and gas production in the US has risen exponentially, following the unlocking of shale potential. A study by Black & Veatch for the Interstate Natural Gas Association of America (INGAA) Foundation found that investment into midstream projects in the US will total US$229bn through 2035. Whilst we believe much of this will be front-loaded, the weak investment seen in 2011 in the oil and gas pipelines sub-sector leads us to have a muted outlook for growth in 2012. However, we expect growth to pick up thereafter, with annual average growth of 5.5% forecast between 2013 and 2021. Transport Going Nowhere Whilst we expect strong growth in one of the two segments that make up infrastructure, we anticipate that the transport sector will struggle to reach positive territory. The portion of transport funding stemming from the public sector (equal to 90%) is its downfall, especially in a policy deadlocked environment. Congress continues to pass short-term extensions to transportation bills, as a result of a failure to agree to a longer-term plan, which is preventing a comprehensive plan for investment in the sector. Whilst we have seen some uptick in interest in public private partnerships – a model which would allow private funding to address the US’ infrastructure deficit, the ongoing barriers remain. Most pressing is the lack of standardised or even tested regulations guiding the investment model, which has frequently led to costly delays in development. The other issue has been the difficulty in gauging demand. Opportunities are few and far between, and these concerns could dissuade investors. Residential Revival The residential and non-residential building industry is expected to outperform infrastructure as a whole over the short term, as residential construction begins to see signs of life following a deep recession that begun in 2007. Construction spending on residential projects grew by 5.7% over the first four months of 2012, following a 1.2% contraction in 2011. This data underlines our view that the residential construction sector should contribute positively to the overall construction industry for the first time in five years in 2012. Housing starts, new home sales and homebuilder confidence are all ticking up, although sustained growth is unlikely, with some months being weaker than others, the overall trend is for the industry to have bottomed out and a slow recovery to emerge. Non-residential building has also turned a corner, from the deep recession seen since 2009. The sector, which incorporates social infrastructure, commercial projects and industrial construction, will contribute to the growth in the overall residential and non-residential industry. Private construction of healthcare and education has expanded, whilst office and commercial construction is also picking up.
Published: July 2012 No. of Pages: 129 Price: US $ 1175
