Construction forecast positive in short term with 3% dip

Photo/Courtesy/ExxonMobil

The state budget may be grim but Alaska’s construction industry as a whole should have another good year, according to a University of Alaska Anchorage Institute of Social and Economic Research forecast.

The 2015 construction outlook predicts a total spend of more than $8.5 billion statewide. That would be a 3 percent decline from the revised 2014 projection of $8.8 billion worth of construction activity in Alaska.

“Our short-term outlook is positive,” Associated General Contractors of Alaska Executive Director John MacKinnon said in a formal statement. “We’ve seen dips in the price of oil and dips in the economy before, and they both come back up. At this point in the cycle we don’t know what the bottom will be or how long before it trends up; it will go back up.”

MacKinnon also noted that there is typically a lag between when public money is appropriated and when it actually “hits the street” in the form concrete being poured or buildings going up, so prior year bonds and capital spends will undoubtedly have an impact in 2015.

ISER prepares the forecast for AGC of Alaska every year.

Employment in the industry is expected to dip slightly from the 17,600 jobs last year, which was a 6 percent increase over 2013. Those projections do not include self-employed contractors in Alaska, estimated to number 9,000 in 2011.

“Our annual forecast underscores the importance of the construction industry in Alaska. It’s not just about the jobs and the economic value of the current construction projects — the one-time expenditures,” MacKinnon said. “It’s really about how what we build becomes a part of the ongoing economy of Alaska for years and often, generations.”

Private spending is expected to be more than $5.5 billion of the total and down about 6 percent. Leading the way per usual will be the oil and gas industry with about $3.8 billion of work, a slight decline from 2014.

ConocoPhillips has several large oil projects on the Western North Slope and ExxonMobil is continuing work on its large Point Thomson gas development.

Forecast authors Scott Goldsmith and Pamela Cravez wrote that low oil prices have a greater impact on how much producers have in the bank than what they want to do because projects are planned based on conservative price models.

“Some of the largest operators in Alaska are quite strong financially, and others have funding sources not tied to the oil price. Furthermore, in Cook Inlet, activity is more sensitive to the price of natural gas than of oil, and the state, through its tax credit programs, has also provided a funding source not directly tied to the price of oil,” they wrote. “Finally, the industry is under political pressure to show that the new state production tax, SB 21, has stimulated new investment.”

At $210 million, mining work is projected to be up 19 percent despite some lower metal prices. The state’s six major producing mines have larger capital expenditures planned for the year, according to the report.

A subcategory that could go under public and private spending, utilities should spend about $680 million this year, down 20 percent. That is due mainly to the completion of Matanuska Electric Association’s Eklutna plant. The largest project left is Anchorage’s Municipal Light and Power $275 million replacement plant scheduled for completion in mid-2016.

Health care spending will be pretty steady, at $240 million in the coming year, based on federally supported projects by Alaska Native health organizations. The Alaska Native Medical Center in Anchorage is building a 200-room patient housing facility.

Public sector spending should be about flat, at more than $2.9 billion, according to Goldsmith and Cravez.

Residential construction is pegged to be down 14 percent at $415 million. The activity continues to center on the Matanuska-Susitna Borough; however, land shortages in Anchorage, high heating costs in Fairbanks and overall stagnant economic and population growth will likely slow the construction segment.

Public sector spending should be about flat, at more than $2.9 billion.

Work on transportation infrastructure — highways, airports, ports, and railroad — should be up slightly and total more than $1.2 billion.

Defense spending, which includes U.S. Army Corps of Engineers environmental work along with military construction, should be $435 million, up about 10 percent. Fort Greely is expected to get $50 million for its missile defense program, a recent addition to the federal budget, the authors wrote.

Other federal spending, done largely by the Interior Department in Alaska, is expected to be off 15 percent to $255 million.

Elwood Brehmer can be reached at [email protected].

Updated: 
11/07/2016 - 9:41pm

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