AKRON—Passage of a federal surface transportation bill, increased investment from local governments and continued strengthening in the U.S. economy are driving an uptick in the U.S. construction market, according to industry analysts.
The U.S. construction industry is rebounding, according to the U.S. Bureau of Labor Statistics. Since January 2011, the industry has regained 48.2-percent of the 2.3 million jobs lost between April 2006 and January 2011. It added 45,000 jobs in December alone.
In December construction of buildings added 10,000 jobs, surpassing its prior 12-month average of 4,000 jobs, bureau statistics indicate. Specialty trade contractors added 29,000 jobs, most of which came from residential specialty trade contractors, which added 18,000 jobs.
“We've seen some construction upturns over the last bit. Housing markets are going up.... Overall construction spending is on a positive note as we go into the beginning of this year,” said Bruce Besancon, vice president of marketing for Alliance Tire Americas Inc.
“So we're looking forward to, I won't say a super strong robust 2016, but as we go it looks like a positive outlook coming up—a little bit bigger than last year. It's not a barnstorming, so to speak, but a little bit better than the previous year.”
Mr. Besancon noted that construction equipment rental companies are experiencing increased business and thus are helping to spur increased sales of off-the-road tires.
“They're probably the major buyers of new equipment, which is helping some of the OEs along. So we see a big drive in that. And if rental wasn't up, that would give us a pretty strong indication that the market was down a bit,” he said. “I think it is a positive indication for both (OE and replacement tires) quite frankly.”
The boost in new equipment sales will soon lead to a need for replacement tires, he noted. “People aren't buying (new equipment) to sit on it. They're going to be doing more usage, and so I believe there's a great opportunity right there for us to get some of that market that's growing a bit.”
Michelin North America Inc., which supplies OTR tires for construction and industrial handling, said it believes the markets will be strong in 2016 for residential housing, manufacturing plant construction and expansion, non-residential construction and some infrastructure work.
Meanwhile, Yokohama Tire Corp.'s Tim Easter, director of OTR sales, also sees bright spots in the market. “Construction continues to be one of the stronger points in the OTR market in the U.S.,” he told Tire Business in emailed responses to questions. “The residential, commercial and road construction sectors contribute to this in most parts of the country.”
Asked what factors will impact OTR tire sales—for OE and replacement—Mr. Easter noted that, “as with most things, the economy is the driver for both replacement and OE.”
As far as any supply issues involving construction OTR tires, he said Yokohama has experienced “none like we have seen in past years. There may be a few sizes that from time to time (that) may be a little harder to get, but overall I would say we've had a strong inventory of products for the past year or so.”
The passage of a long-term federal highway spending bill is expected to encourage contractors to invest in their fleets while strengthening equipment rental operations.
In a survey of construction firms across the U.S., contractors have a positive outlook for hospital, private office, multifamily residential and higher education construction projects, as well as school and public building construction this year, according to the Associated General Contractors of America.
Meanwhile, Dodge Data & Analytics predicts that U.S. construction starts for 2016 will rise 6 percent to $712 billion, following gains of 9 percent in 2014 and an estimated 13 percent in 2015.
“The expansion for the construction industry has been under way for several years now, with varying contributions from each of the major sectors,” said Robert Murray, chief economist for Dodge Data.
“Total construction activity, as measured by the construction starts data, is on track (in 2015) to record the strongest annual gain so far in the current expansion, advancing 13 percent. Much of (2015's) lift has come from non-building construction, reflecting the start of several massive liquefied natural gas terminals in the Gulf Coast region, as well as renewed growth for new power plant starts,” he said.
“Residential building, up 18 percent (in 2015), has witnessed continued strength for multifamily housing while single family housing seems to have re-established an upward trend after its 2014 plateau,” Mr. Murray said.
“At the same time, non-residential building has decelerated (in 2015) after surging 24 percent back in 2014, and is now predicted to be flat to slightly down given a sharp pullback for new manufacturing plant starts and some loss of momentum by its commercial and institutional building segments.”
In addition to the 6-percent growth in housing starts, Dodge Data forecasts a 16-percent increase in residential building and a 9-percent jump in non-residential building. However, the non-building construction sector will suffer a 14-percent drop.
But if the “volatile” electric power and gas plant category within non-building construction is excluded, Dodge predicts total construction starts in this sector for 2016 would increase 10 percent, after a corresponding 8-percent growth in 2015.
The American Road & Transportation Builders Association (ARTBA) sees 4-percent growth in the transportation construction market, rising to $208.3 billion this year from $200.5 billion in 2015.
While expenditures for highway, road and street construction are moving in the right direction, a full recovery to pre-recession levels is still years away, absent a major increase in investment at all levels of government, the association said.
“We are pleased to see a more coherent approach to highway funding coming from Washington. We expect that to give our end-users an important boost over a longer time horizon,” a Michelin spokesperson said.
Last December Congress passed the Fixing America's Surface Transportation (FAST) Act, which authorizes $305 billion worth of funding for surface transportation projects for the next five years. It contains provisions covering every aspect of the nation's highway, bridge, mass transit, trucking and vehicle safety systems.
The five-year spending legislation—the first long-term highway bill passed by Congress in a number of years after repeated stop-gap measures—does offer confidence and certainty construction contractors need, according to industry observers.
On average, federal funding accounts for about 52 percent of state departments of transportation capital expenditures for highway and bridge improvements. The highway and bridge construction market is expected to be uneven across the country, with programs growing in 23 states and Washington, D.C., and remaining flat in nine states, according to the ARTBA.
State and local governments are expected to spend an additional $42 billion for maintenance work.
Contractors will have an additional $45.7 billion, compared with an estimated $42.6 billion in 2015, in business opportunities from private highway and bridge work that is completed as part of housing developments and larger commercial structures, separate from parking lots and driveways, the ARTBA said.
Dodge Data predicts that single-family housing starts will surge 20 percent in dollar value due to increased access to home-mortgage loans and the easing of economic fears of potential homebuyers as unemployment levels decrease.
“We ended 2015 with a positive jobs report, an annual record high for auto sales, and the housing market poised to be the strongest since 2007,” said Fannie Mae Chief Economist Doug Duncan. “The first fed funds rate hike since 2006 has had a minimal impact on mortgage interest rates so far, and we believe mortgage rates will edge up only gradually, ending the year at around 4.2 percent.
“Despite our expectation of only a small rise in mortgage rates, home price and income dynamics should inhibit home purchase affordability. In addition, continued rent increases will hinder renters' ability to save for down payments,” Mr. Duncan said.
“Therefore we believe the pace of improvement in total home sales should moderate to 4 percent in 2016. However, we expect the increase in single-family starts to accelerate to 17 percent this year, if easing housing supply shortages and a continued strong pace of household formation pan out.”
Meanwhile, commercial building starts are expected to increase 11 percent in 2016, following an estimated 4-percent gain in 2015, according to Dodge Data. Office construction is leading the way in the commercial building upturn, aided by more private development as well as construction activity related to technology and finance firms, Dodge Data said.
The Associated Builders and Contractors Inc. (ABC) predicts non-residential construction spending will jump 7.4 percent in 2016.
“ABC's leading indices each suggest that 2016 will be another solid year for the typical U.S. non-residential construction firm,” said ABC Chief Economist Anirban Basu.
“ABC's Construction Confidence Index encompasses expectations with respect to hiring, profit margins and projected sales growth. According to the most recent survey, overall contractor confidence has increased with respect to both sales (67.3 to 69.4) and profit margins (61 to 62.9).
“And while the pace of hiring is not expected to increase rapidly during the next six months, largely because of the lack of suitably trained skilled personnel, the rate of new hires will continue at a steady pace. ABC's Construction Backlog Indicator also signals strong demand during the months ahead.
According to the latest backlog survey, average contractor backlog stood at 8.5 months by mid-year 2015, with backlog surging in the western United States and the heavy industrial category.”
To reach this reporter: [email protected]; 330-865-6127; Twitter: @kmccarr