Construction economists do not sugarcoat their forecast for the industry in 2020. Equipment Leasing & Finance Foundation predicts slower economic growth next year and weak equipment investment. Associated General Contractors and the Association of Equipment Manufacturers are also expecting moderate growth in the construction market. There are some bright spots, even though the picture is not the most rosy. Equipment sales are on a growth track.
Ken Simonson, the chief economist of AGC, predicts growth in multifamily, public nonresidential, and private construction.
He said that the total growth in nonresidential building spending will be near the 2.2 percent annual increase reported for the first ten months of 2019 as compared to the same period in 2018. The best-performing segments for 2020 will likely include highway and road construction, transportation infrastructure — airports and transit — ports and railroads, and power and energy, including solar and wind.
Simonson believes that the weakest category of construction in 2020 will again be retail, with the exception being the retail component of mixed-use buildings such as office and airport terminals. Simonson believes that the lodging industry is in danger of slowing down due to an oversupply or possible interest rate increases. Meanwhile, warehouse construction will shift from large distribution centers at the edge of metros to smaller structures at “last mile” or “click and collect” locations within metros. He added that these projects would be more expensive in terms of cost per square foot but not necessarily more overall.
ELFF’s 2020 Equipment Leasing & Finance U.S. Economic Outlook reports that the U.S. economic slowdown in 2019 will continue in 2020. The report states that “Overall, our expectation is for the economy to grow by 1.7 percent (down 2.3 percent from 2019), and we project equipment and software investments will increase by 1.1 percent (down 3.6 percent from 2019).”
Healthy Equipment Sectors
AGC’s Simonson responded that the highway, transit, and airports sector “has benefited from several years of state, local, and legislative approval of revenue increases or bond issues and gas tax.”
According to the American Road & Transportation Builders Association’s (ARTBA) annual economic forecast, the U.S. market for transportation infrastructure is expected to grow by at least five percent in 2020.
Dr. Alison Premo Black of the ARTBA, chief economist, conducted the analysis.
After adjusting for inflation and project costs, Black predicts that total domestic transportation construction in 2020 will reach $300.4 Billion, up from $286.5 Billion in 2019. According to Black, the transportation construction market grew 8 percent in 2019. This was due to gains in highways, streets, and pavement work, which increased by $9.6 Billion. The airport construction market grew by less than 1% in 2019 but still reached record levels of investment. The growth of the mass transit, subway, light rail, and metro sectors, as well as private railroad investments, also contributed to a successful year in transportation construction.
According to the ARTBA, the overall market activity for transportation construction is expected to grow or remain stable in approximately half of all states. Texas, California, and Illinois are among the biggest markets that will remain stable or continue to grow.
The report noted that after growing by 15 percent in 2019, the value of the public highways, streets, and related construction investments by state transportation departments as well as local governments — which is the largest market segment — will increase by 6 percent and reach $77.5 billion. Construction of private highways and bridges, as well as parking lots, driveways, and parking lots, will grow from $69.1 billion to $71.8 billion by 2020. This will continue over the next five-year period due to increased market activity. In 2019, the pace of construction for bridges and tunnels remained flat. It is expected to increase by $800 million, or 3 percent, in 2020. After adjusting for inflation and project costs, the market activity in bridge and tunnel construction fell from $28.8 to $28.6 Billion in 2019.
In 2020, public transit and rail construction is expected to reach $24.2 billion. This represents a growth of 5 percent. Subway and light-rail investment is expected to reach new records, reaching $11 billion. Estimates show that airport terminals and related construction, such as parking garages and hangars, air, freight terminals, and traffic towers, will increase by $19.6 billion. In 2020, runway work is expected to reach $4.9 billion.
Simonson, from AGC, also believes that the market for renewable energy is healthy.
The market is a reflection of state mandates, technological advances, and the competitiveness of wind and solar power generation compared to gas (and nuclear and coal) energy. He also noted that “pipelines will be built to catch up oil and gas produced from fracking but the timing of projects depends upon regulatory and court decisions.”
Equipment Sales Picture
According to ELFF, the investment in construction equipment fell 6.7 percent during Q3 2019 but increased 4 percent compared to a year earlier. The Construction Machinery Momentum Index dropped from 92.3 in November to 90.8 in December. The number of new privately owned houses increased by 15 percent in October. This is the highest growth rate since late 2017. Meanwhile, the Consumer Sentiment Index rose 1.3 points to 90.8 in December. The Index indicates modest growth in investment in construction machinery over the next two years, according to the equipment leasing organization.
The investment in material-handling equipment grew by 11 percent in Q3 2019 and is flat from year to year. Materials Handling Equipment Momentum Index increased from 79.1 to 81.2, but it is still low by historical standards. Materials handling equipment imports fell by 2.6 percent in October, marking the seventh decrease this year. Industrial production also declined by 0.8 percent. According to the ELFF forecast, the Index’s recent movement indicates that materials handling equipment investments could grow in the next two years.
ELFF reported that investment in all other industrial machinery increased by 4.5 percent annually in Q3 2019, which is 4.3 percent higher than a year ago. The Index for this category increased from 94.3 to 95.7 in December, which is the highest reading since mid-2018. M1 Money Supply grew by 0.8 percent in October. Manufacturing employment increased by 0.4 percent in December, which is the highest growth in over 20 years. The Index indicates that other industrial equipment investments will continue to grow moderately over the next two years.
The October 2019 issue, The Equipment Report by Rouse, shows that values for heavy earthmoving and general construction equipment through the third quarter have shown some positive signs. Construction market intelligence provider Rouse says heavy earthmoving equipment was the first to show signs of decline, with excavators and wheel loaders offering the most pressure. Similar patterns emerged as the year progressed. However, aerial equipment, light and medium earthmoving equipment, and telehandlers were most affected. The market has seen a decline in 2018 after a very strong year.
Rouse also reported that, in addition to the weaker prices of used equipment being offered for auction, there was a “notable increase” in the number of construction cranes for sale. The pattern of lower-tonnage rough-terrain cranes, truck-mounted and carry-deck, has remained stable. All-terrain cranes and crawler models with higher tonnages are slowing down, but their value is still soft. North American auction data indicates a challenging future for mobile cranes. However, whether or not these patterns of sales will continue remains to be determined, according to this report.