The number of Giants who were surprised with increased work volume in 2003, and forecasts for 2004, indicate that Giants' business prospects are definitely improving. General measures of business conditions, covered in Construction Equipment's exclusive 2004 Giants survey in May, suggest that North America's largest fleet owners are as confident this year as they have been since 1999 or 2000. Considering the depths from which they are recovering, though, even consistent increases in work volume and equipment spending won't approach the prosperity of the late 1990s.
Giants underestimated 2003 work volume when the survey came to them early last year. Forty percent forecast an increase in work volume. Looking back from the vantage point of May 2004, though, 49 percent of Giant fleet managers recorded actual increases in work volume for 2003. Encouraged by the unexpected business, 15 percent more Giants forecast increases in work volume for 2004 than last year.
The Giants list is an amalgam of construction firms, construction-materials producers, equipment-rental companies, industrial companies, government agencies, and other equipment-fleet owners, but the most common type of company on the list is the construction contractor. Giant contractors are encouraged about work volume, with 53 percent forecasting an increase and only 13 percent expecting volume to drop. That's the smallest portion of contractors expecting work volume to fall since 2000. The industrial and general-building subsets of the contractor category are particularly excited about 2004, with 72 and 67 percent, respectively, anticipating increased volume.
The moderating force in Giants' optimism is uncertainty over the highway bill. With renewal of the six-year plan for federal highway funding (already almost a year late) stalled in a tug of war between President Bush and Congress, the funding for big-dollar highway, bridge, and tunnel construction remains questionable.
Highway-bill politics notwithstanding, Giants' fleet spending accelerated with increased work volume. Only 20 percent of Giants forecast increased spending on equipment last year, and yet this year's survey confirmed that 37 percent of Giants actually spent more in 2003 than in the previous year. Forty-three percent of Giants plan to increase replacement budgets in 2004.
Transportation funding's effect on the dominant highway-and-heavy segment of the Giants list cannot be ignored, though. The portion of Giant contractors expecting to spend more on fleet this year (40 percent) nearly matches that of the entire Giants population (43 percent). But another 22 percent of Giant contractors plan to cut fleet spending. That's nine percentage points higher than the rest of the Giants population.
The greatest work-volume comeback is reported by a unique segment of Giant fleet owners that actually supplies machines to other Giants—equipment rental firms. Until 2003, the percentage of Giants who cut rental use had risen steadily for four years. The numbers turned around last year, though, and the percentage of Giants expecting to increase rental use in 2004 is as high as it has been since 1999. So it's no surprise that 77 percent of rental companies on the Giants list expect work volume to increase this year. None of them expect volume to fall, and 75 percent plan to increase fleet spending.
In contrast to Giant rental companies, mining firms are fairly conservative judges of business conditions, yet with 57 percent of mining Giants expecting 2004 to be a very good business year, their enthusiasm measures just one percentage point behind the rental firms. Sixty-five percent of mining Giants expect 2004 volume to increase (double the forecast of 2002). Forty-nine percent plan to spend more on equipment this year, following 43 percent who spent more in 2003.
The 2004 Giants survey holds lots of encouraging news, not just for immediate stakeholders in this industry such as equipment manufacturers and rental companies, but for all the industries and companies and employees that work with Giant firms. It's ironic that the greatest limiter of Giant's economic potential is the politicians in Washington scurrying toward election day leaving anemic extensions of the expired federal highway plan in place, even as state revenues (and their potential as matching funds) are showing signs of sustained recovery. This cap restrains the largest segment of the Giants population—more than a third of the firms that buy most of the new machines sold in the United States each year and own 12 percent of all equipment at work. Just imagine, if politics weren't stalling delivery of highway funds, what might the enterprise of our construction Giants accomplish if it were unleashed into this year's economic recovery?