Alaska’s Construction Spending 2009 Forecast

Abstract

construction spending “on the street” in Alaska in 2009 will be $7.1 billion, down 3% from 2008.1,2,3 Lower construction spending, combined with higher material and labor costs, will result in a modest reduction in the level of construction employment in 2009. Although this will be the fourth year of decline, the level remains considerably above the long-term average. Excluding the oil and gas sector—which accounts for 43% of the total—construction spending will be $4.1 billion—down 1% from 2008. Private-sector construction spending will follow the slowdown in the Alaska economy. Excluding oil and gas, we expect private spending to be $1.3 billion in 2009, a decline of 24% from 2008. But strength in the oil and gas sector will keep the overall private sector decline to only 12%. Mining, utilities, and commercial spending will be down, mostly because a number of large projects have been completed. However, commercial —as well as residential— spending will be weaker, in response to the slowdown in the U.S. economy. Public construction spending will be up 16%, to $2.7 billion, offsetting much of the decline in private spending. That growth will mainly be due to the large FY 2009 state capital budget. But strong federal spending— both military and civilian— and the federal stimulus package will also contribute to the increase. Uncertainty in this year’s forecast comes from several sources. Volatility in commodity prices has affected construction spending in two important ways. The lower petroleum and metals prices in early 2009 have made investment in some prospects less attractive. Also, companies that finance construction activities out of their current cash flow are dealing with shrinking capital budgets. The national economy continues to deteriorate as we enter 2009. Consumers are cutting back on expenditures, and businesses are reducing their capital spending. Credit has become more difficult— if not impossible—to obtain, and the unemployment rate continues to rise. Economists anticipate a long and deep recession at least through 2009 and perhaps beyond. The federal government has stepped in to try to loosen credit markets, so far with only limited success, and we anticipate that early in the year Congress will pass a large stimulus package, perhaps reaching $1 trillion. The Alaska economy has felt few ill effects from the recession ravaging the rest of the nation, but as the recession continues and deepens, Alaska is expected to begin to suffer as well. Resource industries may cut back on their development activities, and businesses may postpone new investments. Consumers may reduce spending. Credit may remain difficult to get, for both the private and public sectors.