January 24, 2018 1

January 2018 Construction Cost Outlook and Forecast

January-2017 POST-FORECAST REVIEW:

The Ohio DOT Construction Cost Index measured inflation for CY2017 at -0.8%1. In January 2017, we

forecast Ohio DOT’s CY2017 construction cost inflation would be 2.5%. Figure 1 illustrates that

construction costs have declined since the second quarter of CY2015. Lower than expected structural

items, diesel, and liquid asphalt prices were significant contributing factors in the difference between

forecast and actual inflation.

Figure 1

January-2018 FORECAST OVERVIEW:

The Ohio DOT Construction Cost Inflation Forecast is presented in Table 1. We predict construction cost

inflation to be 3.4% in CY2018, a decrease of 0.6% from the 4.0% forecast in January 2017. Inflation is

expected to increase to 4.1% in CY2019. In CY2020 and CY2021 inflation is expected to gradually decline

to 3.6% and 3.4%, respectively, and 3.2% in CY2022. From CY2023 through CY2026 inflation is forecast

to be 3.0%, based upon average rates over 30 to 60 years as measured by the GDP deflator and the

Consumer Price Index (CPI). The long-term forecast from 2027 onward is 2.0%, based on the Federal

Reserve’s long run inflation target rate.

Table 1: January 2018—5-YEAR CONSTRUCTION COST INFLATION FORECAST

CY2018 CY2019 CY2020 CY2021 CY2022

High 5.7% 6.2% 5.8% 5.5% 5.0%

Most Likely 3.4% 4.1% 3.6% 3.4% 3.2%

Low 1.9% 2.0% 1.5% 1.2% 0.9%

The following is a narrative of major factors that will have an influence on construction costs through

the forecast period: (1) economic activities globally, nationally, and throughout the state and (2)

regional construction costs for labor, oil and diesel, liquid asphalt, and steel, among others.

1 Ohio DOT Construction Cost Index published January 19, 2018

100.0 102.7

104.6

101.0

105.3

109.9

108.7 107.3 107.4 106.5

90.0

95.0

100.0

105.0

110.0

115.0

Ind

ex

20

12

Q1

= 1

00

The Ohio DOT Construction Cost Index

Ohio DOT Construction Cost Change Over Time

Ohio DOT Bid Analysis & Review Team, January 2018

January 24, 2018 2

STATE & NATIONAL ECONOMIES:

In the past several years, the United States experienced growth in all areas of the economy, and the

upcoming year shows no signs of major disruption to this trend. GDP is at 3.4% currently.2 Most areas of

the U.S. economy are strengthening substantially, including employment, consumer spending, and

business investment, while other sectors, such as manufacturing and the housing market, continue to

perform modestly. Any disruptions that were caused by the hurricanes last fall have been fully

recovered. Stock-market indexes are consistently performing well and at new highs, representing one of

the longest and strongest periods of growth in the United States’ expansion after the Great Recession.3

Recently passed tax cuts will likely keep more money in the pockets of consumers, at least for the

immediate future. Inflation is at 1.8% (December 2017), a sign that the economy is performing strongly

but not overheating.4 GDP increased by 3.2% in Q3 2017 and is expected to increase 2.8% through

2018.5 In response to these positive economic signs, the Federal Reserve raised the interest rate three

times in 2017.6 Federal Reserve officials expect the economy to keep growing through 2018 and the

interest rate will likewise increase.

In Ohio, economic expansion is also bringing more jobs, but the housing market continues to be a cause

of concern. Business activity continued at a moderate pace and the Consumer Confidence Index

increased for Ohio to its highest level since December 2000.7 The unemployment rate for Ohio ended

the year at 4.7%, which represents a bit of a drop in recent months, but this is 0.6% higher than the

national average. The third quarter of 2017 also showed an uptick in the number of discouraged workers

not in the labor force for Ohio.8 While this is still the lowest it has been in about ten years, it could be

representative of the fact that wages are still not increasing proportionately to labor demand. Ohio’s

housing market continues to perform modestly. Sales of existing homes in the Midwest increased 3.6%

compared to a year ago, while sales of new homes decreased 1.4%, due in part to continuously rising

prices. Nationally, however, sales of new homes increased by 15.4%.9 Median home prices are 6.2%

higher than a year ago.10

In the manufacturing sector, companies are experiencing a slight slowdown in the recent boom, but

remain strong overall. Production levels continue to be high, thanks to high demand. Machinery and

durable goods are performing particularly well, while Ohio auto dealers are experiencing a slight

decrease in demand.11 Despite a few weak points, U.S. manufacturing remains strong thanks to high

global growth, recovering oil prices, and a weaker U.S. dollar.12

2 “GDPNow”, Federal Reserve Bank of Atlanta, January 18, 2017, https://www.frbatlanta.org/cqer/research/gdpnow.aspx 3 Mitchell, Josh, “Economy, Markets Rev Up”, The Wall Street Journal, November 30, 2017, https://www.wsj.com/articles/americans-spending-incomes-

rose-briskly-in-october-1512048708 4 Bureau of Labor Statistics, “CPI – All Urban Consumers”, January 12, 2018, https://data.bls.gov/timeseries/CUUR0000SA0L1E?output_view=pct_12mths 5 Keen, Timothy, “Economic Summary,” Ohio Office of Budget Management, January 10, 2018. 6 “U.S. Federal Reserve raises interest rates again,” BBC News, December 13, 2017, http://www.bbc.com/news/business-42344170 7 Ibid. 8 Fred Economic Data, December 1, 2017, https://fred.stlouisfed.org/series/OHUR 9 Keen, Timothy, “Economic Summary”, Ohio Office of Budget Management, January 10, 2018. 10 Ibid. 11 “The Beige Book”, Federal Reserve District, November 29, 2017, Pg. G-2,

https://www.federalreserve.gov/monetarypolicy/files/BeigeBook_20171129.pdf 12 Dulaney, Chelsey. “Don’t Worry About the Pullback in Manufacturing,” The Wall Street Journal, December 1, 2017,

https://blogs.wsj.com/moneybeat/2017/12/01/dont-worry-about-the-pullback-in-

manufacturing/?cx_testId=16&cx_testVariant=cx&cx_artPos=2&cx_tag=contextual&cx_navSource=newsReel#cxrecs_s

January 24, 2018 3

As an indicator of overall economic health, the construction market is very responsive to labor market

trends and investment. Construction in Ohio continues to increase hiring; in fact, this sector shows one

of the highest levels of employment increases, both nationally and at the state level.13 Construction

employment increased 3.9% for Q3 2017 compared to a year ago, and this trend is consistent when

broken down between different construction sectors. 14 The lowering of the overall unemployment rate

continues to be a point of concern for the construction industry. This will likely cause cost increases for

construction companies and ODOT, as workers are able to be more selective causing wages to rise.

Taken as a whole, increasing employment and larger business investment contribute to a growing

economy in Ohio and across the United States. The low unemployment rate has not yet caused a

significant increase in wages, but households are feeling more secure in their financial position. In fact,

the Consumer Confidence Index increased in November 2017 to its highest levels since 2000.15 The

effects of President Trump’s tax plan have yet to be fully understood, but it is expected to expand

economic growth, at least for the immediate future. The housing market is slower in its expansion, but

bright spots in recent months include an increase in home sales and construction projects. ODOT can

expect a modest increase in prices as contractors continue to face a tight labor market, while volatile

changes in the economy or prices are not expected. However, higher oil and natural gas prices could

alter the expected trajectory in Ohio. Higher energy prices may increase oil and natural gas drilling in

the Appalachian (Marcellus and Utica) shale plays. We discuss this possibility in the “Appalachian Shale

Oil & Natural Gas” section below.

INTERNATIONAL ECONOMY:

The global economy is predicted to experience 3.1% growth in 2018. Economic growth in 2017 beat

predictions. 16 Political pressures, conflict, and protectionist policies have the potential to undermine

economic growth and its benefits. China’s GDP growth is expected to remain above 6.0%.17 Low oil

prices and political unrest continue to plague South America, while the European economic recovery has

been quietly proceeding. We expect slow global economic growth to continue through the forecast

period, with mild global demand for construction commodities like steel and cement.

The Bank of Mexico predicts Mexican GDP growth between 2.0% and 3.0%.18 The Consensus Economic

Forecast agrees and predicts the 2017 GDP growth rate for Mexico to be 2.2%.19 Trade tensions with

the United States, pressure to renegotiate NAFTA, as well as immigration reform, are still on the

horizon. Despite this, the peso has regained the lost ground against the U.S. dollar and is now 13.9%

stronger against the dollar, year over year. Once December figures are finalized, trade between the

United States and Mexico may have set a record high in 2017.20

13 Keen, Timothy, “Economic Summary”, Ohio Office of Budget Management, December 12, 2017,

http://www.obm.ohio.gov/Budget/monthlyfinancial/doc/2017-12_mfr.pdf 14 FRED Economic Data, “All Employees: Construction in Ohio”, “Average Hourly Earnings of All Employees: Construction in Ohio”, “All Employees:

Construction: Construction of Buildings in Ohio”, Retrieved December 8, 2017 15 Keen, Timothy, “Economic Summary”, Ohio Office of Budget Management, December 12, 2017,

http://www.obm.ohio.gov/Budget/monthlyfinancial/doc/2017-12_mfr.pdf 16 The World Bank, “Global Economy to Edge Up to 3.1 percent in 2018 but Future Potential Growth a Concern”, January 9, 2018 17 The World Bank, “Global Economic Prospects: East Asia and the Pacific”, January 9, 2018, http://www.worldbank.org/en/region/eap/brief/global-

economic-prospects-east-asia-pacific 18 Bank of Mexico, “Quarterly Report July – September 2017 Summary” 19 University of Texas at El Paso, “Mexico Consensus Economic Forecast”, Volume 20, Number 3 20 United States Census Bureau, “Trade in Goods with Mexico”, https://www.census.gov/foreign-trade/balance/c2010.html#2017

January 24, 2018 4

Vietnam has been an intermediary for Chinese steel manufacturers to enter the United States. As such,

duties ranging over 200% may be levied against Vietnamese steel. The U.S. Department of Commerce is

expected to make a final decision on the tariffs on February 16, 2018.21 Domestic steel prices are on the

rise despite declining scrap steel prices. If these tariffs are enacted, we expect additional increases to a

key heavy highway input.

Venezuela is in dire straits. The GDP decreased by an estimated 12.0% in 2017 and 16.5% in 2016.22

Crude oil is one of the few remaining props left to hold up the country’s economy and production is

deteriorating rapidly, down 28.6% year-over-year.23 Additionally, some estimates of inflation calculate

the rate to be above 4,000%.24 If crude exports continue the current trend, other oil producing nations

would have to replace Venezuela’s shortfall. That would lead to at least a momentary increase in crude

prices as new production levels and supply routes are established.

KEY CONSTRUCTION INPUT TRENDS:

LABOR: Labor in the construction industry is on solid footing with many firms planning to hire additional

laborers in 2018. The biggest challenge continues to be the shortage of qualified workers. Besides

increasing wages, benefits, and training to mitigate labor shortages firms are investing in information

technology to increase staff productivity.25

Construction employment increased nationally by 3.1% through the addition of 210,000 jobs in 2017 to

its highest level since September 2008. Over the last seven years construction employment has

experienced a near linear increase of 28% with the creation of 1.5 million jobs.26 For Ohio construction

employment increased by 3.3% through the addition of 6,800 jobs in 2017 to its highest December level

since 2007. Ohio’s construction employment has also experienced an upward trajectory of 23% over the

last seven years with the creation of thirty-nine thousand jobs.27

Construction wages are averaging 3.0% higher than a year ago at $29.24. The pay scale for construction

is trending 9.8% higher than the private-sector pay scale on average.28 There is a potential for

substantial wage increases as the unabated demand for laborers continues.

CONTRACTOR & SUPPLIER MARGINS: Competition levels for Asphalt work type contracts (Figure 2)

remain at the highest levels in over 10 years. Competition levels for Bridge Replacement work (Figure 3)

reached a low in July 2016 but have rebounded to 2015 levels and are holding steady. The Ohio DOT

capital program for FY18 is expected to top $2.4 billion. We expect ODOT contractor workloads to peak

21 U.S. Department of Commerce, “U.S. Department of Commerce Issues Affirmative Preliminary Circumvention Rulings on Steel from Vietnam”, December

5, 2017 22 Central Intelligence Agency, The World Fact Book, https://www.cia.gov/library/publications/the-world-factbook/geos/ve.html 23 Kurmanaev, Anatoly, “Venezuela’s Oil Production Is Collapsing” The Wall Street Journal, January 19, 2018, Pg. A1 24 Smith, Noah, “Venezuela Is Living a Hyperinflation Nightmare”, Bloomberg, December 19, 2017, https://www.bloomberg.com/view/articles/2017-12-

19/venezuela-is-living-a-hyperinflation-nightmare 25 AGC of America, “Seventy-Five Percent Of Construction Firms Plan To Expand Headcount In 2018, Contractors Are Optimistic About Strong Economy, Tax

& Regulatory Cuts”, January 3, 2018, https://www.agc.org/news/2018/01/03/seventy-five-percent-construction-firms-plan-expand-headcount-2018-

contractors-are-0 26 Bureau of Labor Statistics, Retrieved January 23, 2018, https://data.bls.gov/timeseries/CES2000000001?data_tool=XGtable 27 Bureau of Labor Statistics, Retrieved January 23, 2018, https://data.bls.gov/timeseries/SMS39000002000000001?data_tool=XGtable 28 AGC of America, “Construction Employers Add 30,000 Jobs In December And 210,000 In 2017; Hourly Earnings Rise 3.0 Percent As Sector Competes To

Attract Workers”, January 5, 2018, https://www.agc.org/news/2018/01/05/construction-employers-add-30000-jobs-december-and-210000-2017-hourly-

earnings-rise

January 24, 2018 5

in the summer of 2019 at levels like those seen in 2014 and 2015. Contractor and supplier margins

increased substantially during that period.

Figure 2

Figure 3

2.0

2.3

2.5

2.8

3.0

3.3

3.5

Av

era

ge

Nu

mb

er

of

Bid

de

rs

Competition for Asphalt Work-type Projects(12 Month Rolling Average)

Ohio Department of Transportation, Bid Analysis & Review Team

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Av

era

ge

Nu

mb

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of

Bid

de

rs

Competition for Bridge Replacement Work-type Projects(12 Month Rolling Average)

Ohio Department of Transportation, Bid Analysis & Review Team

January 24, 2018 6

We expect contractor and supplier margin growth to have a modest impact on construction cost

inflation within the next 12 months and greater inflation in year two of the forecast. If federal spending

on infrastructure increases significantly, contractor and supplier margins may rise, contributing to

construction cost inflation at that time. Another source of uncertainty is oil and natural gas drilling

activity in the Appalachian Shale plays of Ohio, Pennsylvania, and West Virginia which are dependent on

the price of oil and natural gas.

OIL, DIESEL & NATURAL GAS: U.S. oil and petroleum product stockpiles have pulled back from the peak

in August 2016 of 2.07 billion barrels. Reserves are down 7.2% year over year.29 Despite this, the EIA still

expects crude oil production to reach a record high in 2018 with an average of 9.9 million barrels/day.30

The largest increases are expected in the Permian basin.

The spot price for natural gas in December 2017 was down 21.7% over last year to $2.81 per million

BTUs, and seasonal prices are still at the lowest levels in a decade.31 Stockpiles are 12.5% smaller than a

year ago and production remains high.32 It is expected that natural gas prices will remain relatively low,

below $4.00 per thousand cubic feet, through the end of 2018.33

Figure 4 shows the Energy Information Administrations (EIA’s) average retail diesel fuel forecast. The

average retail price of diesel fuel reached a low point in February 2016 of $2.00 per gallon. Though

prices have climbed nearly every month thereafter, prices remain at historically low levels. The Energy

Information Administration predicts prices will remain below $3.10 through the end of 2019.34

Figure 4

LIQUID ASPHALT: Despite still being at depressed levels crude oil has had an upward trend for the past

six months. Year over year crude prices are up roughly 15%. The same increase is reflected in liquid

29 U.S. Energy Information Administration, “Weekly U.S. Ending Stocks of Crude Oil and Petroleum Products”,

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WTTSTUS1&f=W 30 Barron, Jeff and Danya Murali. “U.S. crude oil production forecast expected to reach record high in 2018”, December 20, 2017,

https://www.eia.gov/todayinenergy/detail.php?id=34212 31 U.S. Energy Information Administration, “Natural Gas”, Retrieved January 18, 2017, https://www.eia.gov/dnav/ng/hist/rngwhhdm.htm 32 U.S. Energy Information Administration, “Weekly Natural Gas Storage Report”, Retrieved January 18, 2017, http://ir.eia.gov/ngs/ngs.html 33 U.S. Energy Information Administration, “STEO Natural Gas”, Retrieved January 18, 2017, https://www.eia.gov/outlooks/steo/report/natgas.cfm 34 U.S. Energy Information Administration, “Short-Term Energy Outlook”, http://www.eia.gov/forecasts/steo/

$2.00

$2.50

$3.00

$3.50

$4.00

Pri

ce/g

all

on

2018 U.S. Average Retail Diesel Fuel Forecast

Actual Diesel Fuel + Taxes Forecast

Source: U.S. Energy Information Administration Short-Term Energy Outlook

January 24, 2018 7

asphalt. Asphalt binder PG64-22 ended 2016 at $306.00 and rose to $351.25 by the end of 2017.35

Despite potential international political unrest, we predict liquid asphalt prices to remain lower than the

previous ten-year average due to the EIA’s projection of mostly flat crude oil prices and increasing global

production through the end of 2019.36

Figure 5 shows the price per ton of asphalt binder PG64-22 over time. The price drop starting in

December 2014 represents the most significant price fluctuation since 2008-2009. Figure 6 shows the

annual percentage price change over the same period. The Ohio DOT Asphalt Cost Index rose 15.0%

from December 2016 to December 2017.37

Figure 5

35 Ohio Department of Transportation, Office of Construction Administration, Bituminous Placing Index 2002-2005-2008 36 U.S. Energy Information Administration, “EIA forecasts mostly flat crude oil prices and increasing global production through 2019”

https://www.eia.gov/todayinenergy/detail.php?id=34492 37 Ohio Department of Transportation, Bid Analysis & Review Team, ODOT Chained-Fisher Construction Cost Index 2017Q1

$0

$100

$200

$300

$400

$500

$600

$700

$800

Pri

ce/T

on

Asphalt Binder PG64-22

Source: Ohio Department of Transportation, Office of Construction Administration. Bituminous Placing Index 2002-2005-

January 24, 2018 8

Figure 6

STEEL: Despite President Trump’s investigation into the effects of steel import tariffs which was

announced in April of last year, action has yet to take place. However, since this announcement, steel

imports increased 20% between April-October 2017 as foreign manufactures attempt to sell on the U.S.

market before it becomes much more expensive to do so.38 The Alliance for American manufacturing

blames this delay in tariff determination for more layoffs and steel plant closings.39 Steel users, on the

other hand, are not complaining because they claim that tariffs will raise their prices and, in turn, prices

for consumer goods.40

Other metrics for the steel industry also point to the volatility in the market. The producer price index

(PPI) for carbon steel scrap had a 25% increase year-over-year in November 2017, and experienced two

spikes in prices in March and September, shown in Figure 7.41 Steel scrap is a major input into the steel

used on ODOT projects in the form of rebar and structural steel. All steel on ODOT projects is

domestically produced due to “Buy American” laws. However, the broader steel market prices do

influence pricing for ODOT projects primarily through scrap steel costs.

Another measure of steel price change is the PPI for steel mill products. It has continued to climb this

past autumn, despite falling slightly last summer. As Figure 8 demonstrates, prices in November 2017

were up 19% compared to their lowest point recently in March 2016.42

38 Swanson, Ana, “Democrats Pressure Trump to Fulfill Promise to Impose Steel Tariffs”, The New York Times. October 26, 2017 39 Ibid. 40 Deaux, Joe, “Trump Still Determined to Impose Steel Tariffs, Says Nucor CEO”, Bloomberg. September 29, 2017 41 “Carbon steel scrap – Metals and metal products”, Bureau of Labor Statistics, December 19, 2017,

https://data.bls.gov/timeseries/WPU101211?output_view=pct_3mths 42 “Steel mill products – Metals and metal products”, Bureau of Labor Statistics, December 19, 2017,

https://data.bls.gov/timeseries/WPU1017?data_tool=XGtable

-50%

-25%

0%

25%

50%

75%

100%

125%

150%

An

nu

aliz

ed

% C

ha

ng

ePercent Change in Asphalt Binder PG64-22 Unit Price

Source: Ohio Department of Transportation, Office of Construction Administration. Bituminous Placing Index

January 24, 2018 9

Like the rest of the country, ODOT will have to wait for announcements on steel tariffs before having a

clearer view on the future of steel prices. For now, steadily increasing prices for steel are expected and

higher levels of imports will surely continue unless tariffs drastically reduce this influx of foreign steel.

Figure 7

Figure 8

Nov-16,

298.2

Nov-17,

374.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

Ind

ex

Ye

ar

= 1

98

6

Source: Bureau of Labor Statistics

Producer Price Index - Carbon Steel Scrap

Steel Scrap increased 25% YOY in November 2017

Mar-16,

157.2

Nov-17,

186.6

100.0

120.0

140.0

160.0

180.0

200.0

220.0

240.0

260.0

280.0

Ind

ex

Ye

ar

= 1

98

2

Source: Bureau of Labor Statistics

Producer Price Index - Steel Mill Products

Prices increased 19% from March 2016 to Nov 2017

January 24, 2018 10

READY MIX CONCRETE (RMC): Ready mix concrete pricing reflects the cost of its key components

(aggregate and cement) along with transportation costs (diesel). Recent consolidation within the

cement industry does not appear to be putting unusual pricing pressure on cement prices at this time.

Nationally, ready mix concrete prices rose 3.2% in CY2017 following increases of 5.5% in CY2014 and

3.7% in both CY2015 and CY2016. Ready mix concrete prices have steadily risen since mid-2011,43 thus

representing a continuous healthy expansion of the construction industry. For Ohio, ready mix concrete

(in place) prices dropped 7.6% in CY2017 after alternating upward by 12.6% in CY2014, downward by

2.9% in CY2015, and upward by 5.3% in CY2016.44 A closer look at the quarterly year-to-year changes

reveal that prices declined in the first quarter of 2017 and remained flat the remainder of the year. The

price of ready mix concrete in the state fluctuates relative to the cost of cement, aggregate, and diesel

at any given time. Lower aggregate demand resulting from reduced fracking levels in eastern Ohio along

with lower diesel prices appear to be the primary reasons for the decline in ready mix concrete prices

currently. In the near term the price of ready mix concrete is anticipated to rise relative to recent diesel

price increases.

AGGREGATE: Aggregate pricing reflects the cost of the aggregate along with transportation costs

(diesel). With aggregate being a naturally dense material its price is based on regional demand as

deliveries are typically limited to a 50 mile radius of a job site.

Nationally, aggregate prices rose 4.3% in CY2017 following increases of 3.3% in CY2014, 4.6% in CY2015,

and 2.3% in CY2016. Aggregate prices have maintained an upward trajectory over time,45 another sign

of continuous healthy expansion of the construction industry. For Ohio, aggregate (in place) prices

dropped 22.0% in CY2017 following increases of 2.6% in CY2014, 16.6% in CY2015, and 18.5% in

CY2016.46 A closer look at the aggregate quarterly year-to-year changes reveal that prices declined

during the first two quarters of 2017 and remained flat for the remainder of the year. The price of

aggregate in the state fluctuates relative to the cost of the aggregate itself and diesel at any given time.

As with ready mix concrete, lower diesel prices appear to be the primary reason for the decline in

aggregate prices currently. The price of aggregate is anticipated to rise relative to recent diesel price

increases in the near term.

APPALACHIAN SHALE OIL & NATURAL GAS:

We expect oil and natural gas prices to be stable to falling over the next year. However, if prices did rise

significantly for either commodity, additional drilling and other development activity is expected to

occur in Ohio. Figure 9 shows the number of drill rigs engaged over time in Ohio, Pennsylvania, and

West Virginia. The dotted line shows natural gas production for the region. The fall in drilling activity

mirrors the fall of oil prices. Ohio wells typically tap the Utica shale play which is rich in natural gas with

very little oil production. Drilling activity consumes aggregate and trucking service. In addition, several

of our contractors have also done work for the Oil & Gas services industry. In the past when drilling

activity was high, aggregate prices rose within the region, trucking services cost more or were hard to

engage, and contractor supplier margins increased.

43 Bureau of Labor Statistics, Retrieved January 11, 2018, https://data.bls.gov/timeseries/WPU13330101 44 Bid Analysis & Review Team, “ODOT Chained Fisher Construction Cost Index”, January 19, 2018: The Structural Concrete Series 45 Bureau of Labor Statistics, Retrieved January 11, 2018, https://data.bls.gov/timeseries/WPU1321?data_tool=XGtable 46 Bid Analysis & Review Team, “ODOT Chained Fisher Construction Cost Index”, January 19, 2018: The Aggregate Base Series

January 24, 2018 11

Increased natural gas production in the region is having a direct impact on construction activity in Ohio,

Pennsylvania, and West Virginia. Several natural gas-fired powerplants have recently been completed

or are currently being built within the region. Several local and regional pipelines are being built in Ohio

to carry natural gas to processing centers and out of the region to retail markets. Royal Dutch Shell’s $6

billion investment which recently broke ground,47 is an ethane cracker being built on the Ohio River just

north of Pittsburg. It is an example of other potential investments which will utilize the natural gas

being produced in the region. This investment, just 15 miles from the Ohio border, may impact

availability of trucks and specialty labor in Ohio during its multi-year construction phase.

Figure 9

FUNDING:

The Trump Administration has placed a $1 trillion dollar infrastructure rebuilding plan at the top of its

2018 agenda. The plan would be funded by $200 billion in federal funds with the remaining covered

through public (state and local) and private funds.48 Congressional actions will be closely tracked to

determine to what extent any enacted legislation would impact the capital program.

The Ohio DOT capital program anticipates awarding $2.4 billion in contracts by the end of FY2018.

Included in this total are the last of the projects funded by the turnpike bonds. As the Ohio Turnpike

Bond Program winds down the budget is expected to range from $1.8 billion in FY 2019 to $1.7 billion in

both FY 2020 and FY 2021. Future budgets have the potential for growth through the enactment of

infrastructure funding in 2018 or any other unforeseen funding sources.

47 “Shell Starts main construction on Pennsylvania petrochemicals complex”, Shell November 8, 2017, https://www.prnewswire.com/news-releases/shell-

starts-main-construction-on-pennsylvania-petrochemicals-complex-300551640.html 48 Gordon, Chris, “Infrastructure Rebuilding Is Trump Administration’s Next Big Push”, The Wall Street Journal, December 24,2017,

https://www.wsj.com/articles/infrastructure-rebuilding-is-trump-administrations-next-big-push-1514144868

January 24, 2018 12

SUMMARY:

Slow and steady growth is still the forecast for Ohio and the nation for this year. We predict modest

increases in commodities and energy prices. Ohio’s DOT projected construction budget for CY2018 will

be the largest since 2015. Contractor backlogs are expected to peak in 2019, driving inflation.

Therefore, we anticipate moderate construction cost inflation in CY2018 and potentially greater inflation

in CY2019. After 2019, we predict tapering inflation that is more consistent with long term averages as

contractors complete multiyear projects and local economies advance.

Prepared by the Bid Analysis & Review Team, Office of Estimating, Ohio Department of Transportation, January 24, 2018