US infrastructure spending to fall 4.3% this year(2)

The record $787bn stimulus spending package will not keep the country’s public sector spending on infrastructure from falling in 2009. Large state government deficits are to blame for the decrease, according to market analysis published by consultancy IHS Global Insight.

Despite a $787 billion stimulus package that devoted $120 billion to infrastructure construction projects, public sector spending on infrastructure is set to decline 4.3 percent this year, according to a US infrastructure market analysis published today by consultancy IHS Global Insight.

The contraction in infrastructure spending is expected to be uniform across all sectors except power, which will expand .9 percent this year thanks to the completion of several new oil refineries and pipeline expansions. However, highway and street construction will decrease 5.5 percent, transportation will contract 10.2 percent and sewage and waste disposal construction will fall 6.5 percent, IHS estimates.

IHS blames the decline on large state government deficits and poor allocation of state funds on the municipal level. In the fourth quarter of 2008, for example, overall state tax revenues fell by 3.6 percent year-over-year, with three-quarters of states reporting decreases in collections, according to a March state revenue flash report from the Nelson Rockefeller Institute of Government. It also marked the first time since 2002 that revenues from all three major sources of states’ income – sales, income, and corporate taxes – declined.

Financing has also become more expensive, forcing a cut-back in real state and local government purchases starting in the last quarter of 2008.

By 2010, the tide may begin to turn, though. IHS believes that as state government budget deficits begin to improve in line with rising tax receipts, infrastructure spending will decline by a less drastic 1.6 percent next year and grow 2.4 percent in 2011.

Spending on highways and streets will rebound with growth of 5 percent in 2010, as will transportation – 1.7 percent – and sewage and waste disposal – 9.8 percent.

Power spending: about to lose juice
Source: IHS Global Insight

Power construction will buck this trend. IHS believes power construction will begin to decline in the third quarter of 2009 and continue to decline through the third quarter of 2011. In 2010 alone, the decline will be quite drastic: IHS expects lower building costs and slumping demand to bring spending down 16 percent next year.

The market analysis is part of a quarterly sector update published by the Lexington, Massachusetts-based consulting firm, which specialises in market forecasting.