United States Infrastructure Report Q2 2008

The construction industry in the United States has the largest share of the global construction industry by size. Due to the continuing slump in the housing sector and a contractionary fiscal policy, the 2008 forecast for the US construction industry is that growth will fall to 0.73% year-on-year (y-o-y). This represents a drop of 3.17% on the previous reported forecast of 3.90%. The fallout from the subprime mortgage debacle has stung the consumer as well as the corporate sector, with access to credit being severely curtailed. The effects on a private sector dominated construction industry are becoming increasingly harsh.

In terms of real GDP growth in the US, we are now forecasting 1.3% in 2008, a considerable drop from the 2.1% estimate that we made in the previous quarter's set of global assumptions. Our assumptions include a sluggish first half of the year, with a rebound beginning in the second half and continuing on into 2009, when we believe growth can reach 2.2%. The government's plan to avoid a recession, which some observers argue is already here, includes a US $168bn stimulus package, approved by congress in February 2008.

The US construction industry has had a major influence on the sector globally, including the development of construction technology and procurement methods. The US has in excess of 600,000 construction companies, contributing more than 9% to its gross domestic product (GDP) in 2005. BMI's forecast for the sector's contribution to growth in 2008 is 9.08%. We also forecast that the industry will log an average growth of 4.73% during 2008-2012, slightly down on our previous forecast of 5.34%.

The US government conducted an in-depth study to improve the country's infrastructure after Hurricane Katrina and then passed The National Infrastructure Improvement Act of 2007. Under the act, work has begun on assessing existing infrastructure, including roads, bridges and dams throughout the US, and starting construction and improvements. Water infrastructure alone now has some 800 projects being developed around the country, worth about US$21bn in total.

The US construction industry saw a significant slowdown in Q407. As the macroeconomic scenario of the US unfolds, the continuing budgetary deficits will cause expenditure on construction to be continually revised. Meanwhile, many private equity firms continue to raise funds to buy lucrative US state public assets, such as highways, bridges and ports. Investors seem to be confident that privatisation will increase as the present economic downturn in the US hits government finances. The housing sector slump looks set to continue for 2008 at least. The Department of Commerce reported in January 2008 that sales of new homes dropped by 26.4% in 2007 to 774,000. This result was the worst sales year recorded, surpassing a 23.1% drop back in 1980.

While a slowdown in construction may expand in 2008, growth opportunities in other construction segments such as retail construction are possible. BMI's projections for growth of the construction sector foresee somewhat of a revival by 2009. Our projected forecast for growth by that year is 4.24% y-o-y.

Also, our latest data give the US construction industry a forecast valuation of more than US$1,300bn in 2008, expanding to more than US$1,722bn by 2012.