Editor’s Log: Issues And Opportunities

At this time of the year, inevitably most conversations turn to market outlooks for the coming year. People want to hear the best scenario, but most are willing to hear the truth. Prognosticating market truths is an educated guess as best. But I’ll give it a try with my usual disclaimer that I’m not responsible for the accuracy of any statements.

Predicting the underground construction and rehabilitation market is particularly hard this year for certain market segments. The Great Recession has been declared over for almost four years. Yet, our economic recovery is sluggish at best, with the public works markets suffering as the result. The Great Save-All, Shovel-Ready Stimulus package has been spent for some time with mixed results. The most obvious tangible effect has been adding another $800 billion to our national debt. Right now, it doesn’t seem to have been a wise investment but history will have to be the judge of that.

On the other hand, certain markets have prospered. Energy is on a roll, maintaining a high level of activity since 2007. Market dynamics world-wide finally collided at the same time to create a healthy, vibrant market place. Prices at last rose to more accurately reflect market costs and values. The public has adjusted to higher energy prices to the point that we don’t hear much outcry about, for example, the cost of gasoline, unless it tops $4 per gallon. The same is true for natural gas and electric bills. While the public may not like paying higher utility bills, as long as gas stays below $5 per BTU, sticker shock is minimal.

In fact, study after study shows that Americans are loving the concept of energy independence for the United States. Almost two-thirds of Americans even favor construction of the northern leg of the Keystone XL Pipeline, from Canada to Oklahoma. All that reflects a solid oil and gas pipeline market, with or without the construction of Keystone, for 2014 and the next several years.

Telecom was late getting its stimulus investment. It took three tries before the government agencies finally settled on an acceptable formula for awarding the money. The concern was what would happen to the telecom construction market once the stimulus dollars ran out. That question has been very favorably answered in 2012 and 2013, with the market showing remarkable strength. The quest for fiber by the American public continues to grow.

The national electric grid – or lack thereof – has gotten much attention the last several years as major storms and black-outs have exposed the weaknesses both in the actual electric infrastructure and the system in place to provide uninterruptable electric power. Several states have initiated conversations and encouragement to place the power grid underground. The Federal Energy Regulatory Commission has a new acting chairperson in Cheryl LaFleur, and it has become apparent that the electric power grid and generation market is high on her list of priorities. Regardless, the electric grid will continue to receive a lot of attention and potentially construction activity in the coming years.
Sewer and water prospects are more complicated. Economic recovery for public works varies heavily from city to city, state to state. It’s a given, at least for the time being, that the days of big Federal monies are gone. When money is available, neglected city streets, roads and parks tend to take precedent over failed sewer/water systems.

Increasing or removal of the private activity bond cap could make additional monies available to municipalities. However, as several city leaders have pointed out, it doesn’t matter where the money comes from if you can’t afford the payments. Still, new construction market prospects continue to develop and work their way to reality – just at a slower pace than other markets.

There is a silver lining in the sewer/water market as well. Rehabilitation activities in many markets are thriving and showing overall solid growth. Interest in rehab methods is reaching an all-time high. Cities who have stuck with traditional methods of repair and replacing sewer and water pipes are now open to a more focused and often cost-effective trenchless rehabilitation approach to their problems. Sewer and water systems must continue to function and rehab has proven to be a reliable and economic alternative when larger full-replacement projects are too expensive at the moment.

There has been enough economic growth in sewer/water in an increasing number of states to warrant some optimism that a turn-around is in progress. Bottom line, there are signs of life for many cities and thus, signs of life for industry.

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