Fitch: Downshift in U.S. Transportation activity reflects the slowing economy

Data tracked by Fitch as it monitors credit ratings for the public infrastructure facilities that support transportation activity in the U.S. reflect lower levels of economic growth. Traffic on roads, freight indices and airport traffic all point to an economy that continues to move upward but at a declining rate, suggesting growth below expectations going forward.

Transportation volumes are closely linked to economic activity as the transportation services and facilities that are needed to support the economy react to a slowdown. As in all sectors of the U.S. economy, consumer spending is a big driver and the prospect for growth along the historical trajectory is uncertain.

Oil price and other commodity price increases in the first half of 2011 underlie the slowdown in transportation. These prices are increasingly influenced by rapidly growing external demand as well as U.S. demand. Consumers are reacting to increased prices with belt tightening. The round of cuts in government spending, the consequent decrease in government related employment and the resulting tightening of business and consumer budgets are likely contributing factors.

Fitch says infrastructure ratings are not immediately affected as a result of the slowing economy. When evaluating debt issued to finance transportation related public infrastructure, Fitch develops a 'rating case' that includes some downward movement of demand for the facility. As a result, most ratings are not immediately impacted by a slowing of growth or a reduction in volumes. Facilities with annual debt service obligations that increase over time and those with less pricing power will have more rating pressure if volume grows more slowly than debt service. A downturn of a duration and extent like the one that commenced in 2008 would pressure many ratings.