ALTHOUGH SOARING PRICES and material shortages have caused strain for builders, makers of construction equipment are hoping for greater stability in the mid- to long-term, especially if and when the pandemic eases and state and local infrastructure projects get started in earnest, with the help of federal intervention.
The Association for Equipment Manufacturers (AEM) released a recent report on the prospects for growth in demand for construction machinery. Considering that fiscal stimulus already played a pivotal role in helping the U.S. economy recover, the group notes that additional proposals carry “a lot of potential” for the construction sector.
“We’ve included the American Jobs Plan (AJP) in our economic forecast,” says Mark Killion, director of U.S. industry at Oxford Economics. “There is a big infrastructure component to the [plan] that could offer a lot of fuel for growth.”
Regarding public health, however, if vaccines and boosters show limited effectiveness against COVID-19 variants, GDP growth may weaken compared with the first half of 2021. Inflation may also put a damper on the economy.
Focusing on just the manufacturing and construction sectors of the economy, model simulations indicate that the AJP could help raise output by 3.5 percent by the end of 2023, Oxford Economics found. “The private, local, state and federal sectors are all expected to boom with double-digit growth at least through next year and 2023,” Killion says.
Some sectors have benefited from greater government funding, including health care and education. Others, such as office buildings, have not fared well. The demand for warehouses and transportation and logistics facilities has been driven by private funding.
The value of nonresidential construction put in place through the first half of 2021 approached $375.7 billion, down 8.1 percent from almost $409 billion in the same six months of 2020. The largest downturns in spending were in amusement and recreation (-29 percent), offices (-28.6 percent), and conservation and development (-19.2 percent), according to the U.S. Census Bureau.
Benjamin Duyck, AEM director of market intelligence, says that while the construction equipment industry is still booming, more stability is also taking shape. AEM recently surveyed its members, 24 percent of whom report demand has remained stable in 2021. Eighty-five percent of survey respondents predict growth over the next 12 months with only 1 percent anticipating a decline.
Expanding global markets are expected to support demand for U.S.-built mining and construction machinery, sales of which are expected to finish at a 21.5 percent gain this year, followed by 4.1 percent in 2022 and 2.8 percent in 2023, AEM estimates.
“Close to 95 percent of AEM members are experiencing supply chain issues,” Duyck says. “For more than half, those issues are getting worse. The main issue is at the supplier source and especially international shipping.”
Meanwhile, the Associated Builders and Contractors (ABC), in analyzing the latest U.S. Producer Price Index, reports that construction input prices are 23.1 percent higher than a year ago. The unadjusted index for steel mill products increased 123 percent from August 2020 to August 2021, the Bureau of Labor Statistics reported Sept. 10.
“While it is quite likely that there will be less inflation a year from now, a rebounding economy, ongoing supply chain disruptions and limited productive capacity have conspired to generate rapid price increases,” says ABC Chief Economist Anirban Basu. “Today’s price increases can meaningfully affect contractor fortunes by trimming margins and delaying the onset of projects.”
The economy is flush with liquidity, Basu says. “Injections of money supply by the Federal Reserve helped create large pools of investable money.” Some is being invested in real estate, which often translates into construction projects. But such liquidity fuels inflation.
“The economy will continue to run hot into 2022 despite the malign impacts of the delta variant, producing both hefty advances in gross domestic product and unusually elevated inflation,” he forecasts. “Contractors should assiduously build contingencies into their contracts to protect themselves from additional materials price spikes.”