“The 2014 construction market appears promising,” says Alan Fennimore, vocational marketing manager for Kenworth Truck Co., and his optimism is generally echoed around the trucking and heavy equipment manufacturing industries.
“Customers at the World of Concrete and CONEXPO-CON/AGG shows earlier this year offered positive comments on the market and are ready to buy new trucks and equipment,” he notes. “The economy is in an upward swing and housing starts are up—both good signs that the construction market is definitely on the rebound.
“Kenworth is in a very good position in the construction market, especially with the introduction of the new Kenworth T880 Class 8 vocational flagship truck, which is now in full production,” Fennimore adds. “For example, ABC Supply Co., one of the nation’s largest distributors of exterior building products, has a new Kenworth T880 and plans to add 53 more T880s to its fleet this year.”
On the lighter-duty truck side, Ford Motor Co. is also reporting an increased demand for work trucks. The company announced in January that it is investing $80 million in its truck plant in Louisville, KY, to increase the build rate by 15% for its Super Duty pickup trucks, including the F-250, F-350, F-450 and F-550.
ACT Research Co. is forecasting double-digit growth in vocational truck orders overall for 2014. “We are currently looking at a 16.7% increase in U.S. vocational truck sales in 2014,” says Steve Tam, vice president-commercial vehicle sector for ACT.
According to a report from Associated General Contractors of America (AGC) on the results of its 2014 Construction Hiring and Business Outlook Survey, “The vast majority of responding firms plan to purchase and/or lease new construction equipment. Specifically, 73% of firms [responding to the survey] plan to purchase some kind of construction equipment this year, while 86% of firms plan to lease new equipment [this year].”
Titled “Optimism Returns,” the report dampens somewhat any exuberance these encouraging findings might engender, however, by noting that spending levels will not be high. “The scope of those new equipment acquisitions remains limited, with 44% of firms saying they will invest $250,000 or less,” AGC says. Still, “firms are more optimistic about their equipment purchasing and leasing plans than they were a year ago. At the beginning of 2013, only 64% of firms planned to purchase new construction equipment, while 77% of responding firms planned to lease new equipment.”
It is worth noting that construction businesses are reporting to AGC that they plan to add at least some new equipment in spite of the fact that they see costs for construction materials and for employee healthcare rising this year.
Wells Fargo offers an online trucking industry review provided by its senior economist, Sam Bullard. Like AGC, Wells Fargo sounds a cautiously optimistic note for the year. On the supply side, housing starts improved for the fourth straight year in 2013, Bullard notes in his Q1 report, and on the demand side, homebuilders continue to report healthy buyer traffic.
“We remain optimistic on the housing market,” he writes. “We look for continued gains in new home construction (16.6%) and home sales (5.4% for new and existing home sales combined) this year.”
Bullard also describes the outlook for capital equipment spending as “encouraging for the remainder of the year. With the outlook brightening and uncertainty related to fiscal policy lessened,” he observes, “firms are likely to entertain the idea of buying new equipment sooner rather than later.”
Thumbs up
Scan the construction industry forecasting crowd and you’ll see more thumbs up than thumbs down for this year, although some groups are clearly more optimistic than others.
- Associated Builders and Contractors (ABC) Construction Backlog Indicator (CBI) hit a post-recession high in the fourth quarter of 2013, growing from 8.2 months to 8.3 months (1.3%). Compared to a year ago, CBI is 3.9% higher—up from 8 months at the end of 2012. Still, the organization is expressing some concerns: “Although CBI’s pace of expansion should be enough to keep the nonresidential construction recovery going, there are significant headwinds for the industry,” ABC chief economist Anirban Basu notes in a February release. “The December and January job reports show that economic recovery is sporadic, and uncertainties surrounding the healthcare law also are likely to slow full-time job creation for several reasons… Sequestration, though recently relaxed, still constrains federal spending growth and many state and local governments continue to wrestle with burgeoning healthcare costs and underfunded pension liabilities.”
- FMI expects nonresidential construction to grow 5% in 2014.
- National Assn. of Home Builders reports solid job growth in Q1, citing Bureau of Labor statistics. The residential construction industry added 9,100 jobs for the month on a seasonally adjusted basis, 3,100 working for builders and 6,000 residential specialty trade contractors. The group’s outlook: “Things are slowly getting better overall.”
- American Road & Transportation Builders Assn. (ARTBA), like the trucking industry, is expressing concern over congressional inaction on the federal Highway Trust Fund, which will be “virtually depleted” by October. According to ARTBA, these federal funds have provided 52¢ of every dollar spent on building and maintaining roads and bridges over the past decade.
- Equipment Leasing & Finance Foundation publishes a Monthly Confidence Index-Equipment Finance Industry (MCI-EFI) report. In March, when asked to assess the business conditions over the next four months, 31.4% of executives responding noted that they believe business conditions will improve over the next four months, up from 21.2% in February.
Conversely, 65.7% of respondents believe business conditions will remain the same over the next four months, down from 72.7% in February, while 2.9% believe business conditions will worsen, down from 6.1% who believed so the previous month.
Hiring on the rise
If hiring is any measure of market vitality, then the construction industry is in for a good ride this year. According to an analysis of new government data by the Associated General Contractors of America, construction employers added 19,000 workers to payrolls in March, bringing industry employment to the highest level since June 2009. The unemployment rate for construction also dropped to the lowest March level in seven years.
Construction employment totaled 5,964,000 in March, a gain of 151,000 or 2.6% from a year earlier, compared with a rise in total nonfarm employment of 1.7% over that period. Residential building and specialty trade contractors added a combined total of 9,100 workers in March and 103,000 (4.8%) over 12 months. Nonresidential construction—building, specialty trades and heavy and civil engineering contractors—grew by 9,900 employees last month and 48,800 (1.3%) since March 2013.
“The rate of construction hiring continues to outrun job growth in the overall economy for the past year,” Ken Simonson, the association’s chief economist, notes. “Furthermore, the pickup has been well balanced, as both nonresidential and residential construction segments added workers last month and over the past 12 months.”
As is the case with the trucking industry, however, construction may be facing a shortage of workers, according to Simonson. “Although most construction employers who need workers have been able to find them so far, increasing numbers of contractors say they are having difficulty hiring,” he cautions. “Last month, the number of unemployed former construction workers fell to the lowest March level since 2007. More of these experienced workers are leaving the industry than are rejoining it.
“Based on projects that have been announced in recent months, contractors are likely to be seeking workers for many types of construction in most parts of the country this spring,” adds Simonson. “Multifamily, manufacturing, and oil- and gas-related facilities will generate particularly strong demand for workers. It will be a challenge to fill all the openings.”
AGC lays some of the blame for the worker shortage on the declining number of secondary-level construction training programs. The organization is urging federal, state and local officials to take steps to make it easier for schools, construction firms, and local trade associations to establish new training programs for future construction workers.
Spot market looking good
The spot market, another leading indicator of market changes, is also suggesting that construction is heading into a stronger year. For example, the national average spot market rate for flatbed loads jumped 15¢ (7%) to $2.30/mi. during the week ending March 29, according to DAT Solutions, which operates the DAT network of load boards.
“With the weather improving and the construction season under way,” it notes, “spot flatbed load availability on the DAT network of load boards increased 7.2% for the week while capacity tightened another 1.3%. The resulting load-to-truck ratio rose 8.6%, from 39.1 to 42.5.”
Load-to-truck ratios represent the number of loads posted for every truck posted on the DAT network of load boards. For the month, the load-to-truck ratio for flatbed freight was up 55% over February, and is 99% higher compared to March 2013—surely a sign of growing strength in the construction market, right?
