May 12, 2008
Economics
Construction Equipment's 2008 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 nearly 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.
Read the 2008 Annual Report and Forecast
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Economic Outlook
by Jim Haughey
Director of Economics
Reed Business Information
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Total Construction Spending
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Indicators (% change from a year ago)
|
|
2006
|
2007
|
2008(F)
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2009(f)
|
|
5.6
|
-2.7
|
-1.2
|
9.3
|
Since the peak level in March, 2006, total construction spending has dropped 8.4 percent and inflation-adjusted volume is down 12 percent or more. The trend will not reverse until the end of the decline in housing start, which now appears to be soon ahead. The recovery will be slow. Further declines on total construction spending are expected well into 2008. Nonetheless, near double-digit spending gains are forecast for both nonresidential buildings and non-building projects in 2008, although much of this will be due to higher project costs. Updated May 12, 2008
Construction Equipment Shipments
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Indicators (% change from a year ago)
|
|
2006
|
2007
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2008(F)
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2009(F)
|
|
13.4
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-28.3
|
5.0
|
5.7
|
Equipment shipments from U.S. factories have been steady for eight months at an inflation-adjusted volume similar to the late 1990s, as well as in 1994. Rising equipment exports and reduced imports are offsetting declining demand from U.S. equipment users approximately 18 months into a slow decline in total construction activity. The latest market reports suggest a few weak months ahead, but small annual pickups are still expected in 2008 and 2009. Updated May 12, 2008
Construction Equipment Price Index
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Indicators (% change from a year ago)
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|
2006
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2007
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2008(F)
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2009(F)
|
|
4.4
|
2.4
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2.8
|
3.1
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In the last year, construction equipment prices increased 2.3 percent and equipment rental rates rose 0.8 percent. The rise in equipment prices has recently picked up under pressure from a declining U.S. dollar and strong export markets for equipment, in spite of a 40-percent drop in shipments from the 1996 peak. However, rental rate increases have begun to weaken in response to the declining domestic construction market. This cuts rental margins and will depress sales to rental fleets through 2008. Ahead, surging steel costs will accelerate equipment price increases for the rest of the year. Updated May 12, 2008
Medium and Heavy Duty Truck Price Index
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Indicators (% change from a year ago)
|
|
2006
|
2007
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2008(F)
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2009(F)
|
|
3.8
|
4.0
|
3.0
|
2.2
|
Truck prices increased 4.0 percent last year, including a period of no change at the end of 2007 that will persist well into 2008 while economic growth is stalled and construction continues to decline slightly. A new round of rapid steel price increases, already underway, will partially offset price discounting by margin stressed producers and distributors. Updated May 12, 2008
Heavy Construction Spending
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Indicators (% change from a year ago)
|
|
2006
|
2007
|
2008(F)
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2009(F)
|
|
11.7
|
13.7
|
9.2
|
10.1
|
Heavy construction spending has been stalled since October in a trend parallel to the stall in overall economic growth. March heavy construction spending was up 11.1 percent from a year ago, and this pace is expected to slip to 10 percent through 2009. The entire gain may be due to project cost increases, however. Material costs for heavy projects increased more than 11 percent in the last year, and highway material costs have increased at a 15-percent annual pace since October. Updated May 12, 2008
Highway/Bridge/Tunnel Construction Spending
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Indicators (% change from a year ago)
|
|
2006
|
2007
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2008(F)
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2009(F)
|
|
12.0
|
7.4
|
5.7
|
8.4
|
Highway construction spending, adjusted for inflation, is declining. Most highway trust funds are stressed by slowing or declining tax receipts coincident with rapidly rising project costs, and some cannot meet federal matching fund requirements. Access to general fund money is shrinking along with slowing or declining general tax receipts, and this funding situation will worsen until several quarters after the end of the recession. The slim gains forecast in nominal highway construction spending assume a small infusion of general funds tax receipts later this year. Updated May 12, 2008
Power Construction Spending
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Indicators (% change from a year ago)
|
|
2006
|
2007
|
2008(F)
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2009(F)
|
|
10.9
|
25.6
|
15.8
|
13.3
|
Power spending is booming at the mature end of a business cycle and is currently 19 percent above a year ago, even though spending slipped slightly early in the year. This growth pace will ebb over the next two years. Mandates for the use of noncarbon fuel sources are prompting extremely costly generating facilities per KWH. Updated May 12, 2008
Transportation Construction Spending
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Indicators (% change from a year ago)
|
|
2006
|
2007
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2008(F)
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2009(F)
|
|
8.1
|
14.7
|
14.3
|
16.1
|
Transportation facility construction spending is 16 percent above a year ago, due in large part to cement, steel and asphalt inflation. The long-delayed recovery in this market appears to be beginning, as more federal funds are released, financially stronger states begin to catch up on delayed projects, and private funds for capacity additions are increased to add capacity. The expansion will last into 2009, because capacity is stressed at many passenger and freight terminals. Updated May 12, 2008
Water/Sewer Construction Spending
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Indicators (% change from a year ago)
|
|
2006
|
2007
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2008(F)
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2009(F)
|
|
12.4
|
5.6
|
2.1
|
7.6
|
Water and sewer construction spending has been stalled for more than a year, during which time residential site development has declined. Reed Construction Data reports that starts have fallen sharply from the peak level late in 2007, but that earlier surge will prevent any extended decline in jobsite activity this year. Spending will increase only enough to match project cost increases in 2008-09. The projected higher growth is 2009 is due to resumed growth in site development. Updated May 12, 2008
Nonresidential Building Construction Spending
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Indicators (% change from a year ago)
|
|
2006
|
2007
|
2008(F)
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2009(F)
|
|
12.7
|
16.7
|
8.3
|
7.4
|
The long boom in nonresidential project starts appears to have ended several months ago, but there is enough work in the pipeline to ensure double-digit expansion of construction spending into 2008, yet with only a modest slowing in 2009. The value of nonresidential starts in the Reed Construction Data project database is down 8.6 percent year to date through April. The declines are 11.9 percent for commercial and 1.2 percent for institutional projects. Manufacturing starts are down 47.2 percent. Updated May 12, 2008
Education Construction Spending
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Indicators (% change from a year ago)
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|
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