N. California College of Construction News Blog

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February 25th, 2013

Posted by nahetsblog on February 26, 2013

NO TIME LIKE THE PRESENT

The Keystone XL oil pipe line project has the potential to deliver eight hundred fifty thousand barrels of oil every day for the next forty years, so why are we not getting it? The eco friendly ones want us to explore and expand the solar,wind,tide,geothermal forms of energy first, but even if we triple their current production that is still going to leave us thirteen million barrels short every day! At the rate of current increases we will need fifteen million barrels of oil every day five years from now. That is a need not a desire, who are we going to get it from,Mexico,South America,North Sea,Alaska pipe line,OPEC , or Canada.or we can expand our production in the lower forty eight,but their is no denying that the need will be their.

If we started digging today it will take at least five years to get the oil to the refineries in Texas no one can predict what the price of oil is going to be five years from now but it is a safe bet it is going to be more than it is now.and as long as the price is above sixty five dollars a barrel it will be profitable to refine the Black Sands of Alberta.

GOOD DEBT VS. BAD DEBT

In the furor over the size of the federal debt, rarely does anyone discuss good debt versus bad debt. Unfortunately, this failure is skewing the debate over the federal debt—to the potential detriment of the nation.

Household vs. Nation
In discussing federal revenues and outlays, the comparison is often made to a household that must balance its budget. This comparison should be carefully limited in its application. What is true for an individual or household is not necessarily true for a nation. In introductory macroeconomics courses, this is referred to as the “fallacy of composition.” Not to go too deeply into this topic, but at its simplest level, there is one major difference: Nations can print money; individuals cannot (at least not if they want to stay out of jail).

The analogy of good debt versus bad debt for the individual or the household can be extended to a country. We clearly delineate between debt acquired for long-lived assets, such as the purchase of a house or a car, versus a short-term consumption item, such as a vacation or a fabulous restaurant meal. The first is considered good, or acceptable, debt; the second is bad, or unacceptable, debt. As with all things in life, there are gray areas. Debt to maintain a major asset, such as replacing a broken furnace or repairing the roof of the house, both of which would have a long useful life, is considered acceptable debt. Debt to acquire an asset that is largely for consumption purposes, although it might have a long useful life, such as a home entertainment system, is less clear. (We could throw into the questionable region the purchase of a refrigerator or dishwasher or repair of a car.)

Investing in Infrastructure
Countries face similar decisions. Debt acquired to build or maintain long-lived assets, such as highways, bridges, dams, ports, communications systems, and so forth, which are investments in the country’s infrastructure, will be repaid with better economic growth, and at least some of the associated cost of construction will be recaptured in higher tax payments. In this sense, the analogy has shifted from a household to a business. Long-term debt acquired for short-term needs, such as meeting payrolls or paying for office supplies, reflects poor management. If necessary, like a business, a country may use short-term borrowing (in the case of the United States, Treasury bills) to deal with the mismatch of short-term expenses (outlays) and receipts (revenues).

Businesses separate these expenses to differentiate between short-term expenses and long-term expenses associated with investment in plant and equipment. For the latter, a company has a capital account. That account will include an expense for depreciation, which recognizes that any asset will wear out over time or become technologically outdated and need to be replaced.

A National Capital Budget?
The United States government, on the other hand, does not have a capital budget. There is a strong argument that the U.S. government should have a capital budget (see for example Federal Capital Budgeting). The argument is not as cut and dry as some would have it. Charles Schultze, former Director of the U.S. Bureau of the Budget (1965-67) and former Chairman of the President’s Council of Economic Advisors under President Carter (1977-80), laid out many of the pros and cons of a federal government capital budget in testimony to the President’s Commission to Study Capital Budgeting in 1998.

The chief danger of a government capital budget is political. Suddenly, virtually every new spending proposal would become a capital item not subject to what little control there is for current outlays. The equivalent would be arguing that an oil change for your car is necessary to maintain its long-term life and, therefore, should be funded through your home equity line rather than paid out of pocket.

Although a formal government capital budget might have significant risks from a political standpoint, the absence of such an account does not preclude voters and politicians from thinking along the lines of capital budgeting when discussing various proposals.

Using a capital budgeting approach is helpful in considering the current state of the economy and the recent partial resolution of the fiscal cliff issues. The federal deficit (outlays minus revenues) and debt (the accumulation of deficits over the life of the nation) are issues that need to be kept in perspective. In the same way that a household or a business should be careful not to take on too heavy a debt burden, the U.S. government has to be cognizant of the dangers of too large a debt burden.

The Economic and Budget Challenge
As previously noted, a nation is not a household or a business. Within reason, a nation can take on additional debt when its economy is struggling and its revenues are down. In addition, it must also reduce its deficits when economic times are good.

Although the United States economy has improved over the past few years, it continues to operate well below its potential. Unemployment remains too high. At the same time, there is a large need for investment in infrastructure. For too long the nation has underinvested in its highways, ports, and other facilities. It is estimated that Minnesota alone needs to spend over $10 billion to repair and improve its water and sewer systems. And if the need to repair and upgrade infrastructure doesn’t seem pressing, consider the 2007 I-35W bridge collapse in Minnesota, which resulted in 13 deaths and 145 people being injured.

Consider the following facts:

  • At present, large numbers of construction workers are out of work. The unemployment rate among construction workers in December was 13.5%, not counting workers who left the industry for jobs in other sectors or retired because of lack of work in construction over the past few years
  • Building materials are relatively inexpensive and will only increase in price once the economy is on an even better footing
  • Long-term interest rates are near historic lows

Given these facts, as well as the pressing need for investment and the economy’s underperformance, what better time to engage in revitalizing our infrastructure?

Making such an investment will not only help lift the economy in the short-run, but increase the nation’s potential growth, improving the government’s ability to pay the debt accumulated for these projects. Failure to invest in our national infrastructure will limit future growth, reducing our global competitiveness.

We should not let legitimate concerns about federal deficits keep us from investing in our future. Borrowing to invest in the nation’s infrastructure would be good for the economy and for the country. It would be good debt.

Construction Spending Gains Strength in October

12/20/2012 by Bernard M. Markstein

Total Construction Spending and its Major Components
The U.S. Census Bureau reported that total construction spending powered up 1.4% in October to $872.1 billion at a seasonally adjusted annual rate (SAAR) after rising 0.5% in September, and marked the seventh consecutive monthly increase. October’s healthy growth was largely due to continued strong expansion in residential construction spending. The Census Bureau also revised up construction spending numbers for August by $9.7 billion (1.2% higher than reported last month) and for September by $8.8 billion (1.0% higher than reported last month). Year-to-date not seasonally adjusted (NSA) construction spending was up 9.3% compared to the same period a year ago.

Nonresidential building construction rose 0.8% to $302.8 billion (SAAR) in October following a 0.6% decrease in September (previously reported as a 1.4% decline, but revised up by $5.9 billion). On a year-to-date NSA basis, spending increased 6.6% from the same period in 2011.

Heavy engineering (non-building) construction spending crept up 0.2% to $268.5 billion (SAAR) in October following a 1.1% jump in September (revised up $3.0 billion). On a year-to-date NSA basis, spending was 8.5% higher than last year.

Total residential construction spending, which includes improvements, increased for the seventh consecutive month, soaring 3.0% to $300.8 billion (SAAR) after increasing 1.2% in September. New residential construction spending, which excludes improvements, rocketed up an even stronger 3.9% after shooting up 3.1% the previous month. Year-to-date total residential construction spending was up 13.3% from the same period a year ago, and new residential construction was up 17.4% from 2011.

Total public construction spending rose 0.8% (SA) in October after decreasing 0.1% in September. On a year-to-date basis, public spending was down 2.0% from the same period in 2011. Total private construction spending leapt up 1.6% in October, recording its eighth consecutive monthly increase, after rising 0.8% in September. On a year-to-date basis, private construction spending increased 16.0% compared to the same period a year ago.

U.S. Total Construction Spending

(billions of U.S. current dollars)

Current Monthly 3-Month Moving Average Year-to-Date (NSA)
Aug-12 Sep-12 Oct-12 Aug-12 Sep-12 Oct-12 Jan-11 to
Oct-11
Jan-12 to
Oct-12
New Single-family 131.6 136.4 141.3 128.3 131.9 136.4 90.2 105.8
Month-over-Month % Change 3.1% 3.6% 3.6% 2.6% 2.8% 3.4%
Year-over-year % Change (NSA) 20.8% 25.0% 29.3% -5.5% 17.3%
New Multifamily (1) 28.1 28.3 29.8 27.7 28.0 28.7 18.9 22.2
1.4% 0.6% 5.4% 2.2% 1.0% 2.5%
17.9% 19.5% 31.0% -6.8% 17.9%
New Residential (2) 159.7 164.6 171.1 156.0 159.9 165.1 109.1 128.0
2.8% 3.1% 3.9% 2.5% 2.5% 3.3%
20.3% 24.1% 29.6% -5.7% 17.4%
Residential Improvements (3) 129.1 127.5 129.8 126.5 127.5 128.8 96.6 105.0
2.6% -1.2% 1.8% 2.2% 0.7% 1.0%
17.3% 13.0% 13.3% 1.2% 8.7%
Total Residential (4) (5) 288.8 292.1 300.8 282.6 287.4 293.9 205.7 233.0
2.7% 1.2% 3.0% 2.4% 1.7% 2.3%
18.9% 19.2% 21.4% -2.6% 13.3%
Nonresidential Building 302.2 300.3 302.8 300.4 300.2 301.8 235.4 251.1
1.4% -0.6% 0.8% 0.1% -0.1% 0.5%
2.9% 1.1% 5.5% -4.6% 6.6%
Heavy Engineering (Non-Building) 265.0 268.0 268.5 266.3 266.8 267.1 205.8 223.3
-0.9% 1.1% 0.2% -0.5% 0.2% 0.1%
4.6% 2.9% 5.8% -5.8% 8.5%
Total (1) 855.9 860.4 872.1 849.2 854.3 862.8 646.9 707.4
1.1% 0.5% 1.4% 0.7% 0.6% 1.0%
8.5% 7.2% 10.8% -4.3% 9.3%

The Economy
Following the December meeting of the Federal Open Market Committee (FOMC), the policymaking arm of the Federal Reserve, the FOMC released a statement explaining the factors that will guide it in deciding when to raise the federal funds rate, a rate that financial institutions charge each other for short-term loans and the FOMC uses to judge how much liquidity its actions are providing the financial markets. Until this meeting, the FOMC’s guide to its policy intentions had been calendar based, with the typical statement that it “anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.” (October 24, 2012 FOMC Press Release)

With the new guidance, the FOMC will maintain its current target range for the federal funds rate of 0% to ¼% until the unemployment rate drops to 6.5%, as long as the one- to two-year projection of inflation does not rise above 2.5%. This is more sensible and more useful than the previous “here’s when (a date) the FOMC expects to raise (or lower) rates” type guidance.

From a practical standpoint, the new FOMC guidance is essentially unchanged from previous FOMC statements. Given the slow rate of employment growth, it is unlikely that the unemployment rate, currently 7.7%, is likely to fall to 6.5% before 2015. What it does provide is explicit guidelines as to what is driving Fed monetary policy. This is in keeping with Federal Reserve Chairman Ben Bernanke’s efforts to increase transparency of the Fed and its monetary policy. As always, the Fed can change policy based on new information and the needs of the economy and the financial markets. The current guidance is helpful, but not set in stone. That is as it should be.

The FOMC also announced that it will extend its program of purchasing additional agency mortgage-backed securities and will make additional monthly purchases of longer-term Treasury securities in 2013. The former will support the housing market’s recovery, the latter will help keep long-term interest rates low, a benefit to business investment and commercial construction activity.

The economic outlook remains positive. Growth for third quarter real (inflation-adjusted) gross domestic product (GDP) was 3.1% (SAAR), up from second quarter’s 1.3%. Third quarter’s growth rate represents good, solid growth, though not as strong as is desired given the continued large pool of unemployment workers. The negative effects of Hurricane Sandy on the economy as reflected in the macroeconomic data have been negligible to date.

The United States economy is on a sustainable growth path. Reed Economics forecasts real year-over-year GDP growth for 2013 to be 2.7% and for 2014, 3.0%. This forecast is at the upper end of what other economists are forecasting, but roughly in line with them.

Risks to the Economy and the Forecast
The relatively positive economic outlook faces numerous risks including the following:

  • Debt default by one or more European governments. The risk of sovereign debt default remains with Greece, Spain, and Italy the most likely candidates. The fear is that a debt default by one country would create pressure on other countries overburdened by debt and force/lead them to default on their debt. A single default by a small country such as Greece would be painful, but not fatal. A default by a larger country or more than one country would be a serious blow to financial institutions and markets worldwide. The result would be recession in all of Europe where several countries are already in recession and drag the U.S. economy down into recession as well.

    Nobody wants this outcome. To date European policymakers have taken actions to avert a debt default. Although no truly long-term solution has yet to emerge, policymakers are likely to continue to make the necessary short-term moves to prevent a default.

  • Abandonment of the euro. It is unlikely that Europe would give up on the euro altogether. It is possible that one or more countries would forsake the euro for its own national currency. Greece is the country that is most likely to abandon the euro voluntarily or involuntarily. The adverse effects on Europe of a single country shedding the euro, particularly a small country, are relatively minor and are more likely to be borne in the short run by the country casting off the euro, although it will likely benefit in the longer run.
  • Going over the fiscal cliff — the return of tax rates to their 2000 level and across the board cuts in federal spending as of the beginning of 2013. As of this writing, negotiations to resolve the problem are ongoing between congress and the administration. It seems likely that an agreement will be hammered out. However, nothing is guaranteed and the risk of going over the cliff remains. The nation’s economy can tolerate a short period of falling off the cliff (more accurately sliding down a gentle slope that becomes steeper over time) if a resolution is on the horizon. Not resolving the issue in a timely manner would be sufficient to tip the U.S. economy into recession.
  • Hitting the federal debt ceiling. As the federal government continues to run deficits, a situation that will not change even with an agreement to resolve the fiscal cliff issue, the debt increases, approaching the debt ceiling in early 2013. Reaching the debt ceiling would require many federal government operations to cease, hurting the economy. It does appear that any resolution of the fiscal cliff will include raising the debt ceiling. Nevertheless, as with the fiscal cliff, the risk of no action is real with negative fallout for the economy.
  • Higher energy prices. The threat of rising energy prices has diminished of late. Nonetheless, the potential for a disruption of energy supplies (mainly oil) resulting in higher prices is always with us. Note that although higher energy prices are always painful and a drag on economic growth, it would take drastically higher prices (50% or more) for a prolonged period to do real damage to our economy.

Although we are reasonably confident that these risks will be avoided, failure to avoid any of these risks would lower our forecast and carry the potential for a U.S. recession.

The Forecast
The Reed Construction Data forecast assumes that the outlined risks are avoided. Total construction spending is projected to rise 9.0% in 2012, 9.0% in 2013, and 9.3% in 2014.

U.S. Total Construction Spending

(billions of U.S. current dollars)

Actual Forecast
2009 2010 2011 2012 2013 2014
New Single-family 105.3 112.6 108.2 129.1 158.0 182.8
Year-over-year % Change -43.3% 6.9% -3.9% 19.3% 22.4% 15.7%
New Multifamily (1) 35.9 24.1 22.6 27.1 33.3 38.0
-30.0% -32.9% -6.0% 19.8% 22.7% 14.1%
New Residential (2) 141.2 136.7 130.8 156.2 191.3 220.7
-40.4% -3.2% -4.3% 19.4% 22.5% 15.4%
Residential Improvements (3) 112.7 112.5 114.9 123.6 134.2 145.0
-6.6% -0.2% 2.2% 7.6% 8.6% 8.0%
Total Residential (4) (5) 253.9 249.1 245.7 279.8 325.5 365.7
-29.0% -1.9% -1.4% 13.9% 16.3% 12.3%
Nonresidential Building 375.7 290.4 283.1 299.9 316.0 342.5
-14.2% -22.7% -2.5% 5.9% 5.4% 8.4%
Heavy Engineering (Non-Building) 273.5 265.0 249.4 268.5 283.1 302.1
0.5% -3.1% -5.9% 7.7% 5.4% 6.7%
Total (5) 903.2 804.6 778.2 848.2 924.6 1,010.3
-15.4% -10.9% -3.3% 9.0% 9.0% 9.3%

ARENA CONSTRUCTION WORK HELPS TO KEEP LINCOLN COMPANIES BUSY

February 23, 2013 7:00 pm • By NANCY HICKS / Lincoln Journal Star

When Mike Mueller takes his grandkids, Jade and Jacob, to a basketball game or a show at the new Pinnacle Bank Arena, he’ll have bragging rights.

He can point to the buff-colored wall panels on the exterior of the arena made by Concrete Industries, where Mueller is a plant manager.

He can point out the concrete system that supports seats in the arena bowl and to the attached parking garage, a pre-cast structure by Concrete Industries.

"It is a source of pride for us," Mueller said. "For most of us, it is a lifetime event."

Mueller is one of more than 1,300 local workers involved in turning an old rail yard into a hot spot with spaces for entertainment, apartments and shopping.

Concrete Industries, a subsidiary of NEBCO, is one of many Lincoln-based companies profiting from the construction work going on near the downtown Post Office.

Lincoln employees have been involved in many of the details, from moving dirt to building the steel stairs, installing the electrical system and putting together the fancy copper tabletops for each of the arena’s 36 suites. Some local examples:

* Glass Edge is supplying the arena’s exterior glass.

* Stephens & Smith is handling the concrete flooring throughout the building.

* Ferguson Enterprises is providing the plumbing equipment and supplies.

* A consortium of local engineering and architectural firms joined hands to do the engineering work on the street system, utility lines, Amtrak station and pedestrian bridge.

The Minnesota firm Mortenson Construction, one of the country’s biggest sports venue construction firms, is the construction manager for the 16,000-seat arena expected to open this fall.

Mortenson, along with local partner Hampton Construction, has selected the arena subcontractors using a process where local firms and national firms with Nebraska partners are given preference.

So far $158 million of the $215 million in public contracts for the arena-related work has gone to companies with a Nebraska office, based on an analysis done by PC Sports, the company coordinating arena-related construction.

More than half the workers on the public construction jobs are from Lancaster County, and most of the rest are from Nebraska. Slightly more than 10 percent have out-of-state addresses.

"It’s really welcome work in a time when work is pretty slow," said Doug Cratsenberg, vice president of Gregg Electric, the company doing electrical work on the arena’s attached parking garage and installing the arena’s fire alarm system.

Two local firms, Gregg Electric and ABC Electric, were partners with Minnesota-based Gephart Electric.

Lincoln companies Commonwealth Electric and Hy-Electric also have been hired in recent weeks, Cratsenberg said.

The estimated $450 million in public and private construction under way in the West Haymarket — the arena, parking garages, street construction, hotels, shops and apartments — supports about 13,000 jobs, based on economic impact studies of nonresidential construction.

About one-third of those jobs are direct, on-site construction jobs; one-sixth are in supplying industries, such as quarries, manufacturers of equipment and materials, design and financial services; and one-half are jobs created in the rest of the economy as workers and owners of construction and supply businesses spend their additional income, said Ken Simonson, chief economist for the Associated General Contractors of America.

Simonson pointed out that Nebraska had the largest percentage increase in construction employment of any state in 2012, a 10.1 percent increase, representing 4,100 jobs, according to the Bureau of Labor Statistics.

Construction employment rose 8 percent in Lincoln and 15 percent in the Omaha-Council Bluffs area, Simonson said.

The development came at a time when the Lincoln construction industry needed work.

The housing market was on a downswing when the arena-related work began, said Wendy Birdsall, president of the Lincoln Chamber of Commerce.

"It was a perfect convergence," she said.

One of the local companies with arena work, Midwest Steel, is making the handrails for the seating bowl, a small part of their larger contract for structural steel.

"We’re glad to be involved," said Midwest Steel President Rob Ediger, whose company is just down the street from the arena.

Arena-related work provided about 35 percent of the company’s work in the past year, and it "allowed us to showcase our capabilities," he said. Midwest Steel is providing the stairwells, railings, catwalks and other structural steel for the arena.

What that might mean for the company’s future remains to be seen, he said.

Partnering on a major project does provide companies an opportunity to expand their experience, said Hampton’s Bob Caldwell.

"Your employees learn from people who build sports venues," he said. "Hampton and others can add Pinnacle Bank Arena to their resumes."

The focus on using local firms likely improved local participation, said Ediger. Some of the national companies may have found a local partner, but generally it would be someone they worked with previously, he said.

Midwest Steel had done work for years with Lincoln’s Hampton Construction. Hampton leaders connected them with LeJeune Steel Co. of Minneapolis, their partner on the steel work.

Judds Brothers Construction of Lincoln cleared the arena site, brought in the dirt for the surcharge, installed water, storm sewer and sanitary sewer lines and removed some of the tracks around the arena.

The company "probably averaged 10 to 12 people there for the five-month period," CEO John Judds said. Other subcontractors were involved in the early dirt work.

"It kept a lot of trucks and drivers busy," he said.

Concrete Industries has been involved in the arena construction for a year and a half, furnishing a substantial amount of the ready-mixed concrete and prefabricated concrete products. There was enough work for the equivalent of about 30 full-time employees, said Bob Nordquist, company president.

And the arena itself isn’t the only construction work in the area, said Nordquist. There are private hotels, apartments, even a corporate headquarters set to go up in the West Haymarket, plus parking garages in the area.

And development of the Nebraska Innovation Campus is on the horizon, he said.

"It’s absolutely amazing what has happened in Lincoln in the last few years."

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