AED Study Finds Direct Link Between Economy, New Equipment Purchases

September 28, 2010

On average, 6.4 cents of every dollar spent on highway construction is used toward the purchase or lease of new equipment or on major repair and maintenance costs.

In other words, highway contractors allocate an average of 6.4 percent of their annual budgets to purchase or lease equipment, or for major repairs and maintenance costs.

This finding is part of an economic impact study released by the Associated Equipment Distributors (AED). Authored by Stephen S. Fuller, Ph.D., professor at George Mason University, the study was undertaken to determine the market impact of highway infrastructure investment on the construction equipment industry, and to also determine the impact of spending on construction equipment on the overall U.S. economy.

While the impact of the highway program on equipment distributors is expected to continue to be significant, the consensus of contractors surveyed for the study was that with rapidly rising nonequipment costs, the percentage of a construction budget attributable to the purchase and leasing of heavy construction equipment will be declining in the future.

The study also concluded that for every dollar in direct spending for the purchase of heavy construction equipment, a total of $3.19 of economic impact is generated: $1 in direct spending, and $2.19 in indirect and induced economic activity from the re-spending of the direct payment affecting all sectors of the national economy. With total estimated direct spending for the purchase of heavy construction equipment at $10.2 billion, the total impact of this spending on the national economy totaled an estimated $32.5 billion.

Key study findings:

  • On average, 6.4 percent of the annual budget of the highway contractors surveyed is attributable to equipment costs.
  • In 2007, an estimated $10.2 billion was spent to purchase equipment for power, highways and streets, sewage and waste disposal, water supply, conservation and development projects.
  • Every dollar of direct spending for the purchase of heavy construction equipment generates a total of $3.19 in economic impact – one dollar of direct spending and $2.19 in indirect and induced economic activity from the re-spending in other sectors of the national economy of monies paid to equipment distributors.
  • The total economic impact of nonbuilding construction-related equipment spending in the U.S. in 2007 was approximately $32.5 billion.
  • In 2007, the $10.2 billion in direct spending for the purchase and lease of heavy construction equipment generated an estimated $9.2 billion in personal earnings ($903,200 per $1 million in direct equipment outlays) and supported more than 265,000 jobs (26 jobs per $1 million in direct equipment outlays).

A national survey of construction contracting companies was completed during the months of April and May. Nineteen construction companies located in nine states participated in the survey.

To determine the approximate economic impact of this spending for heavy equipment, the average percentage developed from the construction company survey was applied to the total value of all nonbuilding construction in 2007. The total value of outlays for heavy construction equipment (purchase or leasing) was multiplied by the appropriate national Gross Domestic Product (GDP) multiplier to calculate the resultant impact on the U.S. economy.