Equipment Type

Relief Around the Corner, But Recovery Remains Distant

Recovery from today's recession appears to be shaping up much like the four recessions we've seen since 1980 in that employment is no longer expected to recover early. The difference this time around, because this is the deepest our economy has dipped since the Hoover administration, is that lagging re-employment and the inevitable cost of stimulus spending are likely to prolong the pain.

September 01, 2009
A Caterpillar 777D hauling rock at Martin Marietta's Lemon Springs, N.C., quarry
Only 24 percent of Giant materials producers forecast 2008 work volume to fall, but 58 percent recorded actual volume drops. As a result, that same percentage (58) of materials Giants will buy less equipment this year.
Construction Equipment Giants research suggests unprecedented lows in business-year outlook for 2009
The percentage of Giants expecting a "very-good-to-excellent" business year is low, but remarkably close to the business outlook in 2003, at the height of the most recent recession. The severity of this recession is more obvious in the unrivaled percentage of Giants expecting "fair-to-poor" business.
Volvo PL4611 excavator-style pipelayer being demonstrated on a Texas project
Pipelining was brisk last year, as robust developing economies drove astronomical energy costs. Those same off-shore markets are recovering quickly and their energy appetite should sustain pipe work.
Construction Equipment Giants research shows equipment buying and rental plunging in lock-step with work volume
With a free-falling percentage of Giants expecting work volume to increase, only 12 percent of Giants anticipate increased fleet buying this year — 21 percentage points below the previous nadir. Half of Giants expect fleet spending to fall. Those expecting to spend more on rental has plunged only a little less dramatically.
Construction Equipment Giants research shows cuts in maintenance and repair spending mirror falling work volume
The 20 percent of Giants expecting to cut equipment-maintenance spending this year is twice the size of any group reporting falling maintenance costs for the past 12 years. The portion of firms planning to spend less on repair has kept up with those experiencing falling work volume even more closely.

About CE Giants

The Construction Equipment Giants list represents as closely as possible all firms that own fleets with replacement values of $25 million or more. Equipment-replacement values are compiled by Construction Equipment magazine using information provided by the individual companies. When figures are not provided (identified with an asterisk), Construction Equipment estimates fleet value. If you feel your firm qualifies as a Giant, please write to Larry Stewart, Construction Equipment, at lstewart@reedbusiness.com or phone (314) 962-0639.


See the List

A list of Giants with fleet-replacement values of $100 million or more can be found at /giants-2009-listings


Recovery from today's recession appears to be shaping up much like the four recessions we've seen since 1980 in that employment is no longer expected to recover early. The difference this time around, because this is the deepest our economy has dipped since the Hoover administration, is that lagging re-employment and the inevitable cost of stimulus spending are likely to prolong the pain. It does appear that housing construction will be on the front of the recovery train, as it often is, leaving the station late this year. But heavy construction spending, despite ample stimulus opportunity, may not be among the primary engines.

Construction Equipment Giants, about 730 firms from many industries that own $25 million worth of construction equipment or more, issued a dark forecast for 2009. Surveyed in May, just 17 percent of Giants expect increased work volume in 2009 and nearly half (48 percent) anticipate overall volume will fall. That 17 percent is a full 21 percentage points less than the smallest portion of firms expecting work volume to increase in any of the past 10 years.

The 2009 predictions of Giant highway and heavy construction contractors — the dominant sub-group on the Giants list — reflect the Giants' pessimism overall. It seems exaggerated given last year's pleasant surprises. While only 22 percent of Giant highway-and-heavy contractors forecast work-volume increases in 2008, 42 percent measured actual work-volume increases after the year's books closed. Thirty-eight percent expected 2008 work volume to fall, but only 28 percent of Giant contractors actually recorded a slowdown.

Plunging value of heavy construction starts in the first half of 2009 explain the abrupt change in Giant's fortunes. According to Reed Construction Data (the construction research organization owned, along with Construction Equipment, by Reed Business Information), the aggregate value of all highway starts in the first six months of this year was 24 percent less than highway starts in the second half of 2008. Starts on water and sewage work through June this year were worth 43 percent less than those in the previous six months. The value of dam and marine projects begun in 2009 was down 58 percent, and various other civil works' value dropped 28 percent.

Nevertheless, chief Reed Construction Data economist, Jim Haughey, expects federal stimulus spending to keep the heavy-construction recession brief and mild. The American Recovery & Reinvestment Act holds $49 billion in transportation funding ($28 billion for highways, $18 billion for transit and rail and $2 billion for airports) and $12 billion for marine and water-related construction, $11 billion for bolstering the electrical grid, and up to $35 billion for federal buildings. That spending is expected to start having greater impact late this year and into next.

But the worst is not yet over. Haughey anticipates a steep decline in construction activity through this summer, with aggregate construction spending falling 11.7 percent. Like other economists, though, he predicts signs of recovery, including rising construction spending, by the first of 2011.

So there's immediate urgency — keeping good people employed, equipment up to date and the lights on — with some relief only weeks away. But construction spending has lost a lot of ground since its zenith near the close of 2007. Haughey believes that steps the Obama administration is taking now that seem necessary for survival will slow recovery of that ground to an agonizing crawl perhaps beyond 2011.

"An end to the construction recession about year-end is suggested by recent market reports," Haughey said in July. "As always, the timing of the turnabout will vary over a 12-month range by project type and region. We expect a variety of restraints stemming from the credit crisis and the response from Washington to keep the recovery subdued."

One of the key restraints is likely to be access to credit. Credit has actually been flowing fairly readily, with interest rates depressed by low mortgage demand. Spot credit problems caused by closed or weakened regional banks notwithstanding, general access to credit appears to have only modestly impinged on spending.

Haughey warns, however, that the Obama foreclosure-prevention plans will very likely continue to be ineffective, as homeowners would rather be foreclosed than to have debt they could never really service restructured. Foreclosures tend to hold reasonably steady at about 2 or 3 percent of all home sales, and did so up through the third quarter of 2007, according to the Zillow.com Real Estate Market Reports. But foreclosures have risen steadily each quarter since then, reaching 24 percent of home sales in the first quarter of 2009. Many economists agree that the foreclosure rate will keep accelerating. Haughey expects the resulting strain on the banking system to be compounded dangerously by federal borrowing to pay for stimulus and other programs.

"How much extra the new team in Washington will borrow is still unclear," Haughey admits. "They have pledged to boost the 2010 spending budget by nearly a trillion dollars. Both the pending healthcare and cap-and-trade (carbon tax) proposals may add a large share of an additional trillion dollars in the next few years. Also, most of the $787 billion stimulus spending has yet to be borrowed. Federal housing finance agencies are on track to borrow over a trillion in the next few years to forgive mortgage payments. Financing the auto industry may cost several hundred billion, and the Federal Reserve Board will soon be desperate to withdraw the trillion dollars of added credit that it has provided on an emergency basis.

"Add it up," Haughey challenges. "This is enough money to be a huge problem for the economy. As always, this scenario will play out with inflation (and rising credit cost) that permits the economic expansion to continue on the false premise that everything is fine. This could persist into 2011 yielding an abrupt end to expansion. Or we could take our medicine in small doses by boosting credit costs relative to inflation and slowing the pace of economic growth to below normal. Which path to take may well be hotly debated before the 2010 election.

"Credit constraints will worsen by year-end and stay serious for several years — expect higher credit costs ahead," he concludes. "GDP [Gross Domestic Product] was boosted 2 to 3 percent in the spring and summer quarters, but that should ebb to negligible within a year."

The Reed economist specifically predicts that the coincidental tightening of credit, escalating interest rates and inflation (with construction materials prices rising faster than overall inflation, courtesy of demand from faster-recovering, developing economies in Brazil, Russia, India and China) will limit GDP growth into 2011 to about 2 percent.

Perhaps the brightest aspect of the outlook is that heavy construction is expected to fall less than 2 percent before the year-end start of recovery. Building (residential and nonresidential) construction is expected to account for most of this year's foreseen 11.7-percent drop in construction spending. It's particularly good news for Giants because 44 percent of firms on the list are highway and heavy or other heavy civil contractors.

Construction Equipment's Giants reacted quickly to plunging construction activity last fall and winter. Just 28 percent increased spending on new equipment in 2008, and 34 percent spent less. The worst year in the past dozen, 2003, saw 30 percent of Giant firms reduce fleet spending. On closer study, among Giant heavy contractors whose fleet-replacement values fell, the cut averaged 20 percent of the fleet value.

Half of Giants and 58 percent of the crucial materials-producer segment of the Giants list expect to buy less new equipment in 2009. Freefalling work volume for the first six months left a lot of under-used horsepower standing by for whatever work might come along before year's end. Equipment spending will only very selectively help boost our economic recovery.

Rationalization of capacity with much-reduced demand is the essence of our economic malaise. With overall production currently so depressed, unemployment has sky rocketed.

National unemployment reached a 26-year high of 9.5 percent in mid-July, and the Fed predicts it will exceed 10 percent before year's end. Since December 2007 (recessions officially start at the peak of the economic cycle, as measured by the National Bureau of Economic Research), unemployment has risen five percentage points, while the economy has contracted roughly 2.5 percent.

An historical rule of thumb once held that for each two-percentage-point drop in the economic-growth rate, the unemployment rate rises one percentage point. In recessions since 1980, businesses have learned to quickly make much deeper payroll cuts, and they have rehired very slowly. The economy has shifted strongly toward recovery within 36 months in these past instances. But the depth of today's trough — not only in GDP but in employment — suggests that we might not expect a repeat of those dynamics.

"Final demand and production have shown tentative signs of stabilization," Ben Bernanke said in late July as part of the Federal Reserve chairman's semiannual report to Congress. "The labor market, however, has continued to weaken."

Until the employment trend reverses, it should diminish fantasies about quick returns to the mountain top inspired by encouraging monthly reports on construction spending, stock-market results or even housing starts. If consumers aren't secure in their jobs, they won't spend the kind of money necessary to help hoist the economy from the depths of its current pit. In that respect, much-diminished Giant fleets will be positioned well for the remainder of 2009, and probably well into next year.

Mid-Year Construction Outlook
by Jim Haughey, Reed Construction Data Chief Economist 

Top 25: Contractor Giants
Company Fleet-Replacement Value (millions) Giants Rank
* Construction Equipment estimate
Source: Construction Equipment Giants list, 2009
See the 2009 CE Giants list
1. Kiewit $3,000 4
2. Quanta Services $1,549 17
3. Granite Construction $875 31
4. Great Lakes Dredge & Dock $800 34
5. Hochtief Americas $694* 38
6. The Vecellio Group $508 45
7. Fluor $500 47
8. Elmo Greer & Sons $475 53
9. Las Vegas Paving $442 61
10. Weeks Marine $402 65
11. Bechtel $400 66
12. Skanska USA $400 69
13. The Walsh Group $400 70
14. T.J. Lambrecht Construction $375 75
15. Clyde Companies $373 77
16. Kokosing Construction $350 80
17. United Contractors Midwest $320 87
18. Clyde Hanson Industries $312 89
19. Layne Christensen $310* 90
20. Clark Construction Group $303* 93
21. KBR $302* 94
22. Price Gregory Services $300 96
23. Teichert $300 98
24. Traylor Brothers $300 101
25a. Wildish Construction $300 102
25b. Willbros Group $300 103

Top 25: Materials Giants
Company Fleet-Replacement Value (millions) Giants Rank
* Construction Equipment estimate
Source: Construction Equipment Giants list, 2009
See the 2009 CE Giants list
1. Lafarge North America $3,584* 2
2. Martin Marietta Aggregates $2,861* 5
3. Lehigh Heidelberg Cement Group $2,850* 6
4. Vulcan Materials $2,397* 10
5. Oldcastle Materials $2,222* 11
6. Cemex North America $1,675* 16
7. MDU Resources $1,200 22
8. Holcim US $935* 28
9. Votorantim Group U.S.A. $558* 44
10. Buzzi Unicem USA $469* 55
11. Titan America $300 100
12. Haines & Kibblehouse $225 124
13. Rogers Group $190 147
14. Ready Mix USA $175* 158
15. Edward C. Levy $150 180
16. Fisher Industries $140* 191
17. A&A Ready Mixed Concrete $136 198
18. OHL USA $125 208
19. Syar Industries $122* 212
20. U.S. Concrete $120 222
21. Luck Stone $110 226
22. Fordyce $108 230
23. Consumers Concrete $100 246
24. Continental Materials $100 247
25. Lehman-Roberts $100 255

Top 25: Rental Giants
Company Fleet-Replacement Value (millions) Giants Rank
* Construction Equipment estimate
Source: Construction Equipment Giants list, 2009
See the 2009 CE Giants list
1. The Cat Rental Store $6,019 1
2. Hertz Equipment Rental Corp. (HERC) $2,800 7
3. United Rentals $2,620* 8
4. Sunbelt Rentals $2,129* 12
5. RSC Equipment Rental $1,696 15
6. GE Commercial Finance $1,200 21
7. NES Rentals $1,000 27
8. Maxim Crane Works $840* 33
9. H & E Equipment Services $799 35
10. F & M Mafco $700 37
11. All Erection & Crane Rental $596* 41
12. Neff Rental $594 42
13. Finning International $576* 43
14. Ahern Rentals $474 54
15. Volvo Rents $461 58
16. Ring Power $456* 60
17. Essex Crane Rental Corp. $450 61
18. AmQuip Crane $440* 63
19. Sunstate Equipment $430 65
20. Milton CAT $400 68
21. Morrow Equipment $332 84
22. Aggreko North America $318* 89
23. Barnhart Crane & Rigging $220 127
24. Kirby-Smith Machinery $205 137
25. Battlefield Equipment Rentals $204 138

 

About CE Giants

The Construction Equipment Giants list represents as closely as possible all firms that own fleets with replacement values of $25 million or more. Equipment-replacement values are compiled by Construction Equipment magazine using information provided by the individual companies. When figures are not provided (identified with an asterisk), Construction Equipment estimates fleet value. If you feel your firm qualifies as a Giant, please write to Larry Stewart, Construction Equipment, at lstewart@reedbusiness.com or phone (314) 962-0639.

See the List

A list of CE Giants with fleet-replacement values of $100 million or more can be found at /giants-2009-listings

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