Construction Equipment Economic Outlook: Stability is on the Horizon

Published: 21/12, 2021

While federal stimulus measures have already played a pivotal role in helping the U.S. economy recover from the pandemic, research provided by the American Equipment Manufacturers indicates that additional proposals such as the American Jobs Plan (AJP) offer a lot of potential for the construction industry in particular.

With respect to the public health situation, how the next several months play out will also impact the next couple of years. Oxford Economics’ baseline forecast calls for 7.3% GDP growth in 2022. If vaccines show limited effectiveness against COVID-19 variants, growth may be just under 3%. If inflation persists, growth might be just under 6%. If all stars align and a “consumer boom” ensues, growth could jump to nearly 10%.

Focusing on just the manufacturing and construction sectors of the economy, model simulations indicate that the AJP could help raise output by 3.5% by the end of 2023. Federal spending would take the most dramatic upward turn. Annual percentage increases from 2022 through 2025 are anticipated to be 29.4%, 26%, 12.5% and 2.5%, respectively. That’s a total increase of 70% over a four-year period. Contrast that with the period of 2015-2019, when federal spending increased just 4.8%. State and local infrastructure spending would also get a big lift from the AJP. Growth of 33% is expected over the next four years. Funding from the private sector is expected to grow 37%.

Should the AJP make it through Congress, the prognosis for infrastructure spending looks good from every direction. However, the outlook is mixed for construction spending related to business and commerce. Some sectors have benefited from increased government funding, including health care and education. Others, such as office buildings, have not fared well. Some sectors, including warehouses and transportation facilities, have benefited from private funding. Total PiP (put in place) construction for business and commerce was flat this year. Growth of 2.9% is expected next year, followed by 7.5%, 5.4%, and 3.5% from 2023-2025.

The housing market has been building up growth over the past couple of years. In 2020, private residential spending was largely driven by new single-family homes and existing home improvements. Looking forward through 2026, the most growth will come from single-family home construction.

Accelerating new home construction has become urgent, as housing affordability has become a major issue. Unfortunately, supply hasn’t been able to keep up with demand. Material and labor shortages have caused a sharp increase in homebuilder backlogs not seen since 2006.

U.S. home pricing isn’t the only thing on the rise. Orders for construction machinery continued to climb through the first half of this year. 

According to results from AEM’s second-quarter member survey, roughly 71% of equipment manufacturers reported an increase in demand from the first quarter. Last year at this time, 85% felt demand had grown quarter-to-quarter, and just 10% said demand for the year was stable. Furthermore, 85% of AEM members predict growth over the next 12 months with only 1% anticipating a decline.

With demand continuing to cruise along, more AEM members are now indicating inventory levels that are too low. Most have been able to increase production to some degree. But new orders are also increasing, leading to an increase in backlog.

The result, says Benjamin Duyck, AEM director of market intelligence, is that while the construction equipment industry continues to be in a boom cycle, more stability is also taking shape.

“Close to 95% of AEM members are experiencing supply chain issues,” Duyck says. “For more than half, those issues are getting worse and are both domestic and global. Component manufacturers and OEMs feel that the main issue does not necessarily lie at the end-point or receiving shipping. Rather, the main issue is at the supplier source and especially international shipping.”

See all news »

Notice: This website use cookies for one or more functions. By continuing using this site, you agree to this. Read more