Construction Equipment's 2010 Annual Report and Forecast Sponsored by Case Construction Equipment
Construction Equipment has reported on the state of the economy and the industry with annual reports for 25 years.
Each year, we call on the expertise of Construction Equipment's top construction economist for an overview of the nation's economic status. Then, we report on the largest exclusive survey in the industry of equipment owners and managers.
And we don't leave out the distribution and rental dealer side of the equation. This year, we are again fortunate to have partnered with the two industry associations in those areas to poll their members: The American Rental Association and the Associated Equipment Distributors.
Total construction spending was unchanged in November, ignoring the random monthly change in residential remodeling spending. But there were downward revisions again for previous months for developer financed projects based on late reports to the Census Bureau that previously started projects had been suspended. Construction spending will continue falling marginally for several for months as residential gains are more than offset by nonresidential declines. Recent much stronger construction jobs reports are consistent with an upturn in overall construction spending early by the spring. Updated Jan. 25, 2010
Construction Equipment Shipments
Indicators (% change from a year ago)
2008
2009(F)
2010(F)
2011(F)
7.6
-36.9
-8.4
13.7
Construction equipment sales improved slightly in November to the highest level in the last six months. The recent gains come largely from rising export sales which accounted for over 75 percent of November shipments. Equipment exports were more than double equipment imports. Domestic demand for construction equipment continues to shrink. Many major users and rental fleets still have idle equipment. A further 5 percent sales drop is expected through next summer before aging equipment and rising construction activity set off a another period of rapid market growth. Updated Jan. 25, 2010
Construction Equipment Price Index
Indicators (% change from a year ago)
2008
2009(F)
2010(F)
2011(F)
3.2
2.6
-0.5
1.8
The construction equipment price index, very volatile from month to month, is unchanged in the three months through November. The index is now only 0.5 percent above a year ago. The equipment rental price index is up 0.25 in the last three months but down 0.7 percent over the last year. Weak domestic demand and surplus inventory are more than offsetting the upward pressure on prices from the declining U.S. dollar. Pricing will be steady to slightly down into the winter. The price gains will stay in the 2 percent range for several years during the sluggish construction recovery.Updated Jan. 25, 2010
Medium and Heavy Duty Truck Price Index
Indicators (% change from a year ago)
2008
2009(F)
2010(F)
2011(F)
2.5
4.9
2.7
3.0
Truck prices inched up 0.1 percent in November but are up 4.3 percent from a year earlier. The expected trend is for modest price increases through 2011. Both fleet managers and contractors have idle trucks and are conserving cash in a slack economy. However, costly new engine requirements and rising steel prices will limit price weakening. Updated Jan. 25, 2010
Heavy Construction Spending
Indicators (% change from a year ago)
2008
2009(F)
2010(F)
2011(F)
11.3
2.4
-0.5
2.2
Heavy construction spending has slipped slightly below the stimulus boosted peak level last summer. Spending is expected to slip 3-4 percent by next summer and return to the current level by late 2011. The impact of the stimulus funds is now ebbing and state and local project cancellations are increasing as budget reserves shrink. The steady outlook assumes that Congress quickly provides a third round of stimulus funding and continues to supplement the highway trust fund with general tax revenues. Updated Jan. 25, 2010
Highway/Bridge/Tunnel Construction Spending
Indicators (% change from a year ago)
2008
2009(F)
2010(F)
2011(F)
5.8
3.8
5.6
7.7
Highway construction spending increased 10 percent since March when stimulus funded projects began. This 17 percent annual growth pace will drop to about 5 percent, including rising project costs, through next spring because the monthly increments in stimulus funding for highways is now declining. The growth pace will recover to 7-9 percent in late 2010 and 2011 with boosts from a permanent federal funding formula, higher project cost inflation and resumed expansion in state and local government tax receipts. Updated Jan. 25, 2010
Power Construction Spending
Indicators (% change from a year ago)
2008
2009(F)
2010(F)
2011(F)
35.1
10.5
-8.8
-11.8
Power construction spending has slipped 6 percent since May but is still 6 percent higher than a year ago. A progressive decline is underway which will extend beyond 2011. Power construction spending had tripled in the previous five years. This surge was due to expanded electric generation, alternative energy generating stations and a rapidly expanding domestic natural gas industry. All of these market drivers have now reversed. Electric generating needs drop quickly during a recession; significant surplus capacity has already appeared. Power station starts are being deferred or cancelled which has caused the boom in natural gas capacity investment to slow. Utility managers are reluctant to invest in new coal or gas generating plants while President Obama’s carbon tax request is pending in Congress. Updated Jan. 25, 2010
Transportation Construction Spending
Indicators (% change from a year ago)
2008
2009(F)
2010(F)
2011(F)
7.2
3.4
6.2
9.6
Transportation facility construction spending has been largely unchanged for five months but is 10 percent above a year ago. Steady spending is expected through 2010 as private and state and local financed projects are deferred or cancelled offsetting stimulus funded projects. Then the stimulus funds for transportation facilities will more than offset the decline by early 2011. Mass transit and regional airports are getting most of the stimulus money. Spending for private transportation facilities will not pick up for at least another year. Updated Jan. 25, 2010
Water/Sewer Construction Spending
Indicators (% change from a year ago)
2008
2009(F)
2010(F)
2011(F)
3.3
-2.2
0.0
8.2
Water and sewer construction spending has slipped 8 percent lower over the last eleven months. Deferred site development and bond financed improvements have more than offset additional stimulus funded projects which have been slower to starts than paving and bridged projects. Spending will resume growing in late 2010 due to resumed growth in site development, both residential and commercial. Updated Jan. 25, 2010
Nonresidential Building Construction Spending
Indicators (% change from a year ago)
2008
2009(F)
2010(F)
2011(F)
9.1
-8.9
-12.2
4.3
Nonresidential building construction spending continues to decline although at a slowing pace. Project starts have recovered from a plunge last spring although no further significant gain is expected until late 2010. A 3 percent further decline in construction spending is projected through next summer, mostly for buildings financed by developers and local governments. Adjusting for project cost increases, the further decline could reach 8-9 percent. No significant decline is forecast for either education or healthcare construction. However, both could decline briefly early in 2010. Updated Jan. 25, 2010
Education Construction Spending
Indicators (% change from a year ago)
2008
2009(F)
2010(F)
2011(F)
7.5
0.0
-4.2
6.7
Education construction spending continued to increase through June but has dropped 9 percent in the first five months of the new fiscal year, mostly for K-12 projects. Higher education spending has continued to rise. State and local governments tax receipts continued to plunge in the third quarter. This is the quickest and deepest decline in their budget reserves in more than 50 year. Education construction spending is expected to stay near the current level through next summer. Updated Jan. 25, 2010
Commercial Construction Spending
Indicators (% change from a year ago)
2008
2009(F)
2010(F)
2011(F)
-4.6
-31.2
-21.3
5.2
Commercial construction spending declined 48 percent in the last 27 months. A 6 percent further decline is expected over the next year. The largest declines were for restaurants and large shopping malls. Double-digit growth will not resume until mid-2011. Both difficult credit access for retail developers and consumer spending cutbacks, especially for cars and other durable goods, contributed to the large decline. Commercial space is now cheaper to buy than build so construction is limited to expanding neighborhoods and custom space layout needs.Updated Jan. 25, 2010 Office Construction Spending
Indicators (% change from a year ago)
2008
2009(F)
2010(F)
2011(F)
7.5
-20.0
-13.9
0.4
Office construction spending continued to expand at a double-digit pace through last September but has since declined 32 percent. Year-to-date office construction starts through November were 40 percent below the same months a year earlier. The abrupt onset of the credit problem based recession caused developers to bunch up the necessary cutbacks in an unusually short period. The big drop also includes some work put on hold until the outlook for tenants is clearer or better borrowing terms can be arranged. Updated Jan. 25, 2010
Healthcare Construction Spending
Indicators (% change from a year ago)
2008
2009(F)
2010(F)
2011(F)
8.8
-1.5
3.0
10.9
Healthcare construction spending has been stalled for nearly two and a half years except for a brief surge last spring. The decline in medical office buildings has been offset by a small increase for hospitals. Nursing home construction spending has been steady. Hospital starts have dropped in recent months with the year to date total through October down 2 percent from a year ago, according to Reed Construction Data. Nonetheless, healthcare construction will hold up better than any other nonresidential category. Hospital project starts are being restrained by caution as hospital managers wait to learn how hospital reimbursement rates will fare in the healthcare debate. Updated Jan. 25, 2010
Manufacturing Construction Spending
Indicators (% change from a year ago)
2008
2009(F)
2010(F)
2011(F)
34.3
24.1
-18.9
-3.8
Manufacturing construction spending increased four fold in this building cycle through May but has declined 23 percent through November. The recent expansion is oil and gas field drilling and facilities; construction spending for factory buildings has been declining slowly since the middle of last year. The boost from energy markets has stalled with crude oil prices and will be reversing within a few months. Expect a 14 percent fall in manufacturing construction spending by the end of next year.Updated Jan. 25, 2010
New Residential Construction Spending
Indicators (% change from a year ago)
2008
2009(F)
2010(F)
2011(F)
34.4
-39.5
9.3
19.6
New residential construction spending inched up 0.3 percent in November. This is the smallest monthly gain in the six months of initial recovery in this market. But this underestimates the underlying growth trend because of the distortions in month to month growth caused by the homebuyer tax credit and its brief demise before being extended. A 9.3 percent rise is expected in 2010 with the growth pace doubling in 2011, reaching nearly 40 percent of the peak level in early 2006.Updated Jan. 25, 2010
Housing Starts
Indicators (% change from a year ago)
2008
2009(F)
2010(F)
2011(F)
-32.9
-37.0
24.3
27.0
Housing starts in November were 18 percent above the January 2009 low point in this building cycle with progressive increases expected for several years. The initial surge in starts was fueled by federal pump priming to provide $8,000 down-payments and partial forgiveness of monthly mortgage payment for current homeowners. The increase in start will slow until next summer when jobs and income are again growing steadily. Large surplus inventories of homes for sale will slow recovery in the Southeast and Southwest. Updated Jan. 25, 2010
Construction Employment
Indicators (% change from a year ago)
2008
2009(F)
2010(F)
2011(F)
-5.5
-13.5
-3.8
3.2
Contractors doubled layoffs in December to 53,000 but most of the increase was probably weather related and will be revised away or reversed quickly. Note that layoffs by heavy general contractors, who are weathering the recession better than building contractors, were unusually large. Layoffs will continue at least through the winter at about a 10,000-25,000 a month pace. Modest residential hiring will not offset continuing layoffs in nonresidential building and possibly small layoffs in heavy construction.Updated Jan. 25, 2010
Gross Domestic Product
Indicators (% change from a year ago)
2008
2009(F)
2010(F)
2011(F)
0.5
-2.6
1.9
2.4
GDP resumed growing in summer 2009 after declining for a year. 4th quarter growth will rise to 3.5 percent from 2.2 percent in the previous quarter. The pickup is mostly due to reduced inventory absorption and a surge of exports. It overestimates the strength of the domestic economy. Expect growth to be in the 1.5-2.5 percent range through the end of 2010 and then rise to 3 percent by late 2011. This is an unusually sluggish. No sustained period of 4 percent plus growth is expected in the first two years of the recovery. Recoveries following financial crisis recessions are typically very slow because of the constraint on investment credit.Updated Jan. 25, 2010
Manufacturing Production
Indicators (% change from a year ago)
2008
2009(F)
2010(F)
2011(F)
-3.1
-11.0
4.4.
4.6
The deepest manufacturing recession in over five decades ended in June, a few months early with help from the stimulus, cash for clunkers and federal assistance with mortgage payment. Production is now 13 percent below the early 2008 peak level which will not be regained for more than two years. Motor vehicle production is now the fastest growing segment. Construction materials production will begin expanding in about six months. Machinery production will have most rapid growth in the next year. Updated Jan. 25, 2010
Employment
Indicators (% change from a year ago)
2008
2009(F)
2010(F)
2011(F)
-0.4
-3.7
-0.4
2.1
Layoffs jumped to 85,000 in December and the unemployment rate remained at 10 percent. But this does not signal a weaker trend in the labor market. The added December job cuts were partly weather related and hence will be quickly revised away or largely reversed. Even as it stands now the December jobs reports reverses only a little more than half of the large upward job revisions in the previous month. The nearly 50,000 added temporary jobs still suggest net hiring soon ahead. Updated Jan. 25, 2010
Prime Bank Rate
Indicators (% change from a year ago)
2008
2009(F)
2010(F)
2011(F)
8.05
5.05
3.25
3.50
The prime bank rate -- the base for many short-term construction loans -- is expected to stay at 3.25 percent into mid to late 2010. Most interest rates will remain low and reasonable steady over that period. But this has not translated to easy credit for construction industry firms. As they deleverage, banks are rationing scarce capital and demanding unusually large spreads over their own borrowing rates from less than prime borrowers. This will persist well into next year. Updated Jan. 25, 2010
Consumer Confidence Index
Indicators
2008
2009(F)
2010(F)
2011(F)
58
45
65
86
The Consumer confidence Index has been stuck at the 50 level for eight months. This is half of the average level and 20 points below the typical level at the beginning of an economic recovery. The index may stay near 50 for a few more months but will rise into the 70’s by late 2010 and past 100 by late 2011. Until then economic growth will be below the usual surge in the first few years of an expansion period. Updated Jan. 25, 2010
Construction Materials Price Index
Indicators (% change from a year ago)
2008
2009(F)
2010(F)
2011(F)
10.1
-2.5
4.5
5.0
Another period of rising construction materials prices is now underway. The construction materials price index increased 0.6 percent in November. The largest gains were for energy, lumber and nonferrous metals. About a 3 percent annual inflation rate is expected through the spring year with materials prices then rising erratically at about a 5 percent pace in 2010 -11. The October price drop was energy driven and is already being reversed. Rising scrap prices suggest more metal price increases soon ahead. A depreciating U.S. dollar will contribute to rising costs for energy based products and all imported products. Updated Jan. 25, 2010
Ready-Mix Concrete Price
Indicators (% change from a year ago)
2008
2009(F)
2010(F)
2011(F)
2.6
-1.5
3.1
3.8
Ready-Mix prices fell 2 percent from June to November. This is roughly consistent with price trends for cement and aggregates. Cement prices are 3.2 percent below a year ago. Aggregate prices are 2.0 percent higher than a year ago. Ready-mix price changes seem random from month to month but will soon return to the underlying trend of about 2 percent annual inflation. The inflation trend will start to rise in about six months when total construction spending is again rising. Expect a 3 percent trend for mid and late 2010 and then a 4 percent trend by spring 2011. Updated Jan. 25, 2010
Paving Asphalt Price
Indicators (% change from a year ago)
2008
2009(F)
2010(F)
2011(F)
58.7
-17.0
4.0
7.0
Volatile asphalt (at the refinery) prices are rising again – up 38 percent from February to November. Asphalt prices increased 11.2 percent in November but falling crude prices and stimulus funded paving are expected to restore a more modest inflation trend soon. Regional price trends may differ substantially from the national average. Expect prices to fluctuate frequently through 2010, averaging slightly higher than current prices. Updated Jan. 25, 2010
