Construction Equipment's 2009 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.
April construction spending increased 0.8 percent from March, but that does not mean that the construction rebound has begun. Total spending in April was 0.1 percent below the original total reported for March because March construction spending was revised about 1 percent lower. Construction spending has drifted lower since the beginning of the year ignoring the often mismeasured residential remodeling spending. This is consistent with the forecast for a 12 percent decline in 2009 spending largely due to the huge declines in November through January. Updated June 29, 2009
Construction Equipment Shipments
Indicators (% change from a year ago)
2007
2008
2009(F)
2010(F)
-24.2
7.6
-38.6
-3.7
The construction equipment market through April is in the same freefall as construction spending was earlier in the year. Equipment shipments from U.S. factories fell 7.3 percent in April from March. Orders jumped but are still a third lower than shipments. Unfilled orders have fallen to nearly 30 percent below a year ago. Equipment prices fell in May after rising modestly for many months. The freefall in equipment shipments is expected to end during the summer but there will be no significant pickup until next spring. Updated June 29, 2009
Construction Equipment Price Index
Indicators (% change from a year ago)
2007
2008
2009(F)
2010(F)
2.9
3.2
2.9
2.5
Construction equipment prices dropped slightly in April and May. Prices are expected to slip slowly until late this year under pressure from excess inventories and generally low inflation for most manufacturers, distributors and cost items. No price collapse is expected in spite of the sharp drop in shipment so far in 2009. Cost pressures on production cost are set to turn up within a few months especially for steel, electronics and imported components. Updated June 29, 2009
Medium and Heavy Duty Truck Price Index
Indicators (% change from a year ago)
2007
2008
2009(F)
2010(F)
5.0
2.5
1.4
1.9
A sharp drop in demand is beginning to put downward pressure on truck prices. This is more than offsetting the accelerated depreciation provided by the stimulus plan. Lack of credit is also delaying purchases by some contractors. Also, smaller truck prices will weaken soon as both GM and Chrysler seek to raise cash quickly. Weak demand will dominate truck pricing trends well into 2010. Nevertheless truck prices rose 0.65 in May. Updated June 29, 2009
Heavy Construction Spending
Indicators (% change from a year ago)
2007
2008
2009(F)
2010(F)
12.8
11.6
-2.5
1.8
Heavy construction spending is 3.9 percent above a year ago (April), returning to almost the peak level in this building cycle reached late last year. Credit this to the end of fears about a freefall in the economy. Stimulus induced spending was not significant through April. Ahead, a 6-7 percent decline is expected by yearend. The positive stimulus impact is more than offset by the negative impact of the deepening recession on public tax receipts and willingness to borrow. Updated June 29, 2009
Highway/Bridge/Tunnel Construction Spending
Indicators (% change from a year ago)
2007
2008
2009(F)
2010(F)
4.9
5.5
0.8
10.1
Highway construction spending has been slipping lower for two years apart from a brief surge in materials costs last summer and fall. Highway Trust Fund balances have been weakened by the recession and high fuel costs. Bonding and appropriations are now being reduced by plunging state budget balances. Stimulus funds will be spent too late to generate any increase in highway construction this year but will boost highway activity 11 percent in 2010. Updated June 29, 2009
Power Construction Spending
Indicators (% change from a year ago)
2007
2008
2009(F)
2010(F)
32.4
34.1
6.1
-6.7
Power construction spending doubled in the 2003-08 economic expansion but growth ended with the onset of the recession last fall in spite of a sharp jump in the last two months. Electric generating needs drop quickly during a recession; significant surplus capacity has 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 June 29, 2009
Transportation Construction Spending
Indicators (% change from a year ago)
2007
2008
2009(F)
2010(F)
15.6
9.0
-6.9
2.8
Transportation facility construction spending was steady in nominal dollars for about eighteen months but has been ebbing steadily lower in the last few months. More of the same is expected through 2010. Airport work will continue to shrink with major carriers now unable to finance their share and airport operators unable to afford planned improvements. Private investment in transportation terminals is dropping with reduced freight volume. Mass transit funding will be boosted in 2010 by new funds from Washington. Updated June 29, 2009
Water/Sewer Construction Spending
Indicators (% change from a year ago)
2007
2008
2009(F)
2010(F)
1.6
9.5
-4.7
1.6
Water and sewer construction spending fell 5 percent so far in 2009 after being steady for more than a year. Spending for treatment plants is higher than a year ago but this is partially offset by a decline in water and sewer line construction as new site development has declined. Spending will resume growing in late 2010 due to resumed growth in site development, both residential and commercial. Updated June 29, 2009
Nonresidential Building Construction Spending
Indicators (% change from a year ago)
2007
2008
2009(F)
2010(F)
17.6
12.0
-3.5
-2.1
Nonresidential construction spending year to date through April is 2.2 percent above last year. Monthly spending will slip about 8-10 percent lower over the next year. Cost cuts contribute some of this drop but most results from the steep drop in starts since last summer, mostly for commercial properties. This depressed the pipeline of jobsite work needed over the next year. Starts jumped back some in May are forecast to stay near the current level preventing a significant pickup in jobsite work until 2011. Updated June 29, 2009
Education Construction Spending
Indicators (% change from a year ago)
2007
2008
2009(F)
2010(F)
12.9
8.1
0.8
0.8
Education construction spending inched slightly lower in the last few months with a further 4 percent decline expected by the end of the year Spending rose 8.1 percent in 2008 which is about a 1-2 percent space increase after adjusting for inflation. The recent strength has been in university residence halls and non-instructional facilities. But Reed Construction Data reports that the value of year to date project starts through ay is down 8 percent from a year ago. Updated June 29, 2009
Commercial Construction Spending
Indicators (% change from a year ago)
2007
2008
2009(F)
2010(F)
15.4
-3.4
-16.3
5.1
Commercial construction spending declined 26 percent in the last nineteen months. The largest declines were for restaurants and large shopping malls. Only a marginal further decline is expected through yearend followed by a 5 percent rebound next year. 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 June 29, 2009 Office Construction Spending
Indicators (% change from a year ago)
2007
2008
2009(F)
2010(F)
19.4
11.4
-12.7
-1.9
Office construction starts in the five months through May were 30 percent below their monthly average before the recession began last September. 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. Jobsite construction spending continued to expand at a double-digit pace through September but has declined 15 percent in the last six months. Updated June 29, 2009
Healthcare Construction Spending
Indicators (% change from a year ago)
2007
2008
2009(F)
2010(F)
11.5
8.1
-1.0
3.1
Healthcare spending has been stalled for nearly a year with increases for nursing homes offset by declines for medical office buildings. But hospital starts have picked up lately which is typical at the end of a long economic expansion. Jobsite spending will dip briefly early in 2009 as nervous project managers wait for more clarity on project costs, borrowing costs and their own revenues. No sustained decline is expected. Updated June 29, 2009
Manufacturing Construction Spending
Indicators (% change from a year ago)
2007
2008
2009(F)
2010(F)
21.1
49.5
25.0
-15.5
Manufacturing construction spending increased sharply in the last two months to 70 percent higher than a year ago and more than four-fold larger than this market at the end of the last building cycle in 2002-03. 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 25 percent fall in manufacturing construction spending by the end of next year. Updated June 29, 2009
New Residential Construction Spending
Indicators (% change from a year ago)
2007
2008
2009(F)
2010(F)
-24.2
-34.3
-39.2
16.5
New residential construction spending has dropped nearly 75 percent in the last three years. Down-payment and monthly payment subsidies from Washington will limit further decline to about 5-8 percent with a turn to an expanding market by fall. However single family -- but not multi family -- housing starts will turn up in the summer because construction costs have declined and new homes are now markedly smaller with fewer features. The multifamily market will weaken well into next year. Updated June 29, 2009
Housing Starts
Indicators (% change from a year ago)
2007
2008
2009(F)
2010(F)
-25.9
-32.9
-42.9
29.1
Starts appear to be at the bottom in this cycle in the single family market but have recently collapsed in the multi family market. Single family permits, starts, sales, and -- in some regional markets -- prices have been about steady so far this year but no significant improvement is expected for several more months. Jobsite spending, including remodeling, is still declining as homebuilders generally can not get credit to build spec houses. Starts will be 50 percent higher by the end of 2010. Updated June 29, 2009
Construction Employment
Indicators (% change from a year ago)
2007
2008
2009(F)
2010(F)
-0.8
-5.5
-12.0
0.0
Contractors cut 59,000 jobs in May, the fewest since last September. There were substantial cuts in heavy construction where the construction stimulus program has yet to be significant. And relatively few cuts in nonresidential buildings where construction spending has declined the most. At least 100,000 more layoffs are expected yet his year followed by more than 200,000 new jobs by the end of 2010. The hiring ahead will be mostly for residential and heavy construction work. Updated June 29, 2009
Gross Domestic Product
Indicators (% change from a year ago)
2007
2008
2009(F)
2010(F)
2.0
1.3
-2.9
1.8
The free fall in GDP set off by the bursting of the credit bubble is now over, but GDP will decline again in the spring and possibly also in the summer before growth resumes in the fall and through next year at a subdued 2 percent annual pace. The usual burst of 4 percent plus growth after a recession is unlikely because of the constraints imposed by worldwide credit deleveraging and the higher taxes and business costs required for the Obama agenda. Updated June 29, 2009
Manufacturing Production
Indicators (% change from a year ago)
2007
2008
2009(F)
2010(F)
1.8
-3.1
-12.4
2.4
Revisions put the plunge in factory production since last July to 14 percent, back to the 1998 level as manufacturers struggle with the inventory surplus caused by the sudden and deep recession. Further small declines are likely in the spring with marginal gains expected through next winter before improved demand -- much of it foreign -- and more normal inventories permit resumption of sustained production increases. There will be significant surplus factory capacity into 2011, especially for motor vehicles, off-road equipment and industrial machinery and components. Updated June 29, 2009
Employment
Indicators (% change from a year ago)
2007
2008
2009(F)
2010(F)
1.1
-0.4
-3.6
-0.2
Layoffs declined to 345,000 in May and the unemployment rate soared to 9.4 percent. Five-to-eight months of slowly ebbing jobs losses are ahead. By summer the job losses will be over in manufacturing and finance and slimmer in distribution but will be rising quickly in government and service jobs. The weak labor market will keep the supply of unskilled and semi-skilled workers generous through 2010 and the recent slowing in wage gains will accelerate including some wage givebacks by union workers. Updated June 29, 2009
Prime Bank Rate
Indicators (% change from a year ago)
2007
2008
2009(F)
2010(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 for another year. 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 June 29, 2009
Consumer Confidence Index
Indicators
2007
2008
2009(F)
2010(F)
103
58
58
80
Consumer confidence jumped 13 points to 54.9 in May, beginning to lessen the constraint on spending throughout the economy. Consumers assess current conditions as no better than in recent months but now see improvement ahead. They are worried about having enough income or credit to pay their monthly bills. The confidence of lower income households has been boosted by prospective gifts from the Obama Administration. The same prospects are souring the confidence of households that do most of the spending. Updated June 29, 2009
Construction Materials Price Index
Indicators (% change from a year ago)
2007
2008
2009(F)
2010(F)
3.9
10.1
-2.5
4.5
The 2008 construction materials price surge has now been fully reversed with a 9.6 percent drop in the construction materials price index in the eight months through May. Further small declines are likely for metal and oil/gas based products in mid 2009. The materials price cuts range from 5.2 percent for single family homebuilders to 16 percent for highway contractors. Little change in the index is likely for several more small months before modest inflation returns later in the year. Updated June 29, 2009
Ready-Mix Concrete Price
Indicators (% change from a year ago)
2007
2008
2009(F)
2010(F)
4.5
2.6
2.4
3.1
Ready-Mix prices are down 1.1 percent in the last two months in spite of rising cement and diesel (delivery) prices. Aggregate prices have been steady. Credit the price drop to an accelerated drop in demand with the collapse of commercial project starts. Starts have fallen much more than spending due to the build-out of projects past the heavy concrete using stage. Building starts will ebb lower for the rest of the year but heavy project starts will be boosted by the stimulus plan. Updated June 29, 2009
Paving Asphalt Price
Indicators (% change from a year ago)
2007
2008
2009(F)
2010(F)
-0.2
58.7
0.0
4.0
Volatile asphalt (at the refinery) prices are rising again -- up 21 percent from February to May -- with at least a few more months of large gains ahead. Regional price trends may differ substantially from the national average. Expect prices to fluctuate frequently through 2010, averaging slightly higher than current prices. This results from the interplay of user demand (up substantially), refinery supply (very variable but restricted in the next few months) and crude oil prices (expected to edge lower). Updated June 29, 2009
