Report Published: "United States Infrastructure Report Q2 2016"

From: Fast Market Research, Inc.
Published: Mon Apr 25 2016

Continued strength in homebuilding and an increase in investment in transportation infrastructure will sustain growth in the US construction industry in 2016. Although, growth rates will begin to slow as the housing market - the main driver of growth - starts to normalise following a steep recovery in the last few years.

The US construction industry will begin to slow in 2016, but still post a strong growth rate, as the residential construction market continues to boom. We forecast a headline growth rate of 2.4% for 2016, down from an estimated 4.5% in 2015. We expect this slowdown to continue, with the industry to average only 1.2% over our 10-year forecast period, as the residential sector normalises. Infrastructure presents one of the few positives for the industry, with oil and gas pipelines and transport infrastructure presenting a few bright spots of activity.

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Latest Updates And Structural Trends

We revised up our headline figure for the construction industry, in line with an upward revision in the transport infrastructure segment. Public spending on transport infrastructure, especially highways, has increased significantly in the wake of the passage of a five-year highway bill (FAST Act) in December 2015. While the legislation does substantially increase federal funding, it does provide certainty for the budgets of state and local agencies, allowing them to initiate projects. We expect heightened investment over the next several years. However, we forecast a drop in sector growth from 2020 as the bill does not provide sustainable funding for the Highway Trust Fund, which will become insolvent without further action in five years.

The residential building industry will continue to be the key driver of construction industry growth moving into 2016. Leading indicators, including housing starts, permits, and homebuilder confidence all point to continued strength. While momentum will be maintained throughout 2016, we believe it will eventually slow as base effects, increases in mortgage rates and high prices begin to drag on growth.

The energy and utilities industry will be supported by continued investment in midstream oil and gas infrastructure. Strong growth in oil and gas pipeline construction in 2014 will continue through 2017, albeit at a slowing pace. Power and transmission infrastructure, on the other hand, will contract in 2016. We see some potential for value creation over the medium term from retrofitting and safety upgrades to nuclear power plants, a new fleet of natural gas power plants as old coal plants are retired, as well as major transmission projects to hook up new renewable supplies.

The US's infrastructure RRI score has fallen this quarter - now at 62.4 out of 100 - in line with a slower industry forecast for 2016.

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