2008 Construction Forecast for Mountain America

Outlook for New Mexico, Arizona, Utah, Colorado, Wyoming and Nevada 2008

Hol Wagner -- Associated Construction Publications, 12/20/2007

Feast or famine? Boom or bust? In 2008 it will depend largely on where you are and what segment of the industry you’re involved with. And you can blame it all on the sub-prime mortgage disaster.

Some Mountain states are still booming. In Utah, for example, the nonresidential construction market is approaching near record levels, with an annual total of nearly $2 billion expected by the end of 2007. The highest level yet was reached in 1997. “Nonresidential construction usually lags behind residential construction by a year or two, and that’s exactly what’s happening here,” said Jim Wood, director of the University of Utah’s Bureau of Economic and Business Research. “We’ve got a real boom in nonresidential construction. It could peak next year, and with what the [Mormon] Church is doing, it could go on even longer than that.” Through October, construction employment in Utah had gained 11 percent from a year earlier. Next door in Wyoming, where there is no end in sight to the ongoing energy boom, the gain was a whopping 12 percent. These are hardly distressed conditions.

But other states are suffering. Most economists believe that Nevada – even with all the multibillion-dollar megaresort construction in Las Vegas – has slipped into a recession, joining California and Florida. All because of the severe decline in homebuilding. Arizona, though it still has a very low unemployment rate (3.5 percent in October), lost 19,000 construction jobs over the past year – again, virtually all in homebuilding. “Construction hasn’t entirely stopped in our state, and I think that needs to be a key point to look at,” said Don Wehbey, economic analysis manager with the Department of Economic Security. But it has definitely slowed, and 2008, according to Beckie Holmes, director of economics for Cox Communications, will be “one of the weakest years we’re going to see,” with most indicators showing it will be a “challenging year.”

In the remaining states it seems to be business as usual. Colorado’s economy, particularly along the Front Range, should continue steady growth in 2008 – unless the wider economy of the region or nation plunges into a recession, according to Patty Silverstein, chief economist for the Metro Denver Economic Development Corp. The big question in Colorado is how the turmoil of the plunging residential market will affect the red-hot commercial real estate sector. In New Mexico, where the construction industry added more than 3,000 new jobs during 2006 and early 2007, that job growth has virtually stopped, and no new construction jobs are expected in 2008. The economy remains basically sound, however, and Larry Waldman, senior economist with the University of New Mexico’s Bureau of Business and Economic Research, notes that the current situation “doesn’t mean we’re going downhill. It just means we’re going uphill slower.”

That last statement pretty well defines Mountain America as a whole: it’s not going downhill, it’s just continuing the upward climb at a slower rate. Even in the two most depressed states, bond rating service Fitch Ratings gave an “AA” rating to two recent bond issues: Clark County (Nev.) School District’s $650-million general obligation bonds for school construction and renovation and the Arizona Department of Transportation’s latest $68 million in Grant Anticipation Notes for Phoenix area freeway work. Justifying its high rating of the Las Vegas school bonds, Fitch explained, “The ‘AA’ rating is based on Clark County School District’s large and growing economic base, historically strong property tax revenue gains, moderate debt levels, adequate financial position supported by a sizeable state funding guarantee, and good long-term capital planning and management practices. Credit risks include the overall economic slowdown precipitated by the significant weakness in the residential housing market.” Even when it’s down, the Las Vegas area economy is still good!

Highway improvements and energy-related construction will remain strong in 2008, even as several states continue the search for sources of additional highway funding (Arizona, Colorado and Wyoming expecting their legislatures to address the topic this year). Though coal-fueled power generation is taking hits from the environmental sector, coal will remain a major source of electrical energy in this region for years to come, with a new plant just under way in Wyoming and one expected to begin construction in Colorado. Uranium mining and milling is hot again (no pun intended), with a new enrichment facility under construction in New Mexico and a second one under consideration, while a new nuclear power plant has been proposed in Utah. Wind farms are rising with considerable regularity throughout the territory. New oil and natural gas pipelines are going in all across the region, with many more in various stages of planning. Only ethanol production is not meeting expectations, with Bloomberg reporting that, even with oil nearing $100 a barrel, ethanol markets are so depressed that existing plants are shutting down and new ones are being postponed – and worse, “energy experts contend ethanol isn’t reducing oil demand.”