Construction Boom Continues for Pacific Northwest in 2008

Carl Molesworth -- Associated Construction Publications, 12/20/2007

If the nation truly is heading into a recession in 2008, why does it feel like the boom is continuing for the heavy construction industry in the Pacific Northwest? Answer: Because the boom is continuing, at least for the time being, across much of the region.

As is usually the case when economic cycles are changing, the Pacific Northwest is lagging behind the national trends as higher oil prices and the credit crunch in housing have pushed the U.S. economy to the brink of a possible recession. Yes, the real estate markets have begun to cool off in the region, but job growth and personal income remain strong while inflation remains manageable. Healthy state and local budgets are feeding substantial capital spending, and federal funding for transportation and other infrastructure continues to flow.

All of this suggests another good year for the heavy construction industry in 2008, which is coming off an outstanding market in 2007.

One measure of heavy construction activity in the Pacific Northwest, the monthly Contract Awards Summary compiled by Pacific Builder & Engineer magazine, reported that the year-to-date volume of publicly reported nonresidential construction contract awards through November 2007 was running 6-percent ahead of 2006’s record-setting pace. Looking at the market in another way, the Contract Awards Summary revealed that the number of projects put out for bid in the region during 2007 grew 12 percent, an even larger rate of growth than the dollar volume.

Reed Construction Data also reported growth in Pacific Northwest heavy construction spending during 2007. Reed economist Jim Haughey rated the region’s 4.5-percent relative growth rate in 2007 as “high” but noted that the trend in late 2007 was “weaker.”

Washington had another big year in 2007 and should have more work on the way in 2008. In November 2007, PB&E’s Contract Awards Summary showed the state running 32-percent ahead of 2006, year to date by dollar volume, and up 9 percent in the number of contracts awarded. Tower cranes darken the sky over Seattle and Bellevue, and announcements of new high-rise building projects continue apace. Spokane is booming as well, with some contractors reporting that the shortage of skilled workers is forcing them to be more selective in taking on new projects. One disappointment was the voters’ rejection in November of an $18.8-billion road and transit construction program for the Puget Sound region that would have kept highway-heavy contractors busy for years to come.

Public construction in Oregon was a mixed bag in 2007, as PB&E’s Contract Awards Summary showed the dollar volume of new projects dropping 30 percent but the number of projects rose by 11 percent. That suggests the market remained active but lacked new mega-projects to boost the contract value total. The state’s economy is still growing, and rents for commercial real estate in the Portland area are expected to rise by 6 percent to 8 percent in 2008, suggesting the solid market for nonresidential building construction should continue. On the highway side, the new Connect Oregon legislation passed by the 2007 Legislature will add $100 million in spending for road construction and repairs, and the ongoing bridge program includes $214 million in new projects in 2008.

Idaho rebounded nicely in 2007 from a relatively flat year in 2006. PB&E’s Contract Awards Summary reported growth of 16 percent in construction contract value and a 33 percent in the number of projects year to date through November. Metropolitan Boise’s economy should continue to outpace the United States during 2008, thanks to continuing population growth and the diversification of its economy over the past few years. Transportation funding continues to lag in the state, but it may get a boost in the 2008 Legislature if lobbying by the construction industry is successful.

Montana is poised for another good construction year in 2008, after PB&E’s Contract Awards Summary revealed solid growth in both contract dollar volume and also the number of new projects in 2007. University of Montana economist Paul Polzin predicts economic growth of 4 percent in the state for 2008. Further, a flush state budget enabled the Legislature to authorize a two-year state building program totaling $301 million for the university and corrections systems, a major highway project and other work.

Alaska didn’t share the other Northwest states’ prosperity in 2007 and may not rebound in 2008. In PB&E’s Contract Awards Summary for 2007, the state was down 21 percent in construction contract value and down 5 percent in the number of contracts awarded. Long-term, problems facing Alaska include a downturn in federal spending due to the loss of influence by the state’s Republican congressional delegation, plus the decline in oil production, which is averaging 6 percent per year.