Construction industry puts hope in Trump funding promises

If the federal government increases funding for highway projects, that also will give a boost to the tire business, he said.

Mr. Easter noted that Yokohama will be increasing production in some of its OTR tire sizes.

"We're also in the process of new product development in radials, and a lot of those sizes are those construction-type sizes," he said.

"We believe these markets will continue to be strong in 2017 for residential housing, manufacturing plant construction and expansion, non-residential construction and some infrastructure work," said Michelin North America, which manufactures earthmover tires for construction equipment, such as graders, scrapers, compactors and cranes. "We expect that to give our end-users an important boost over a longer time horizon,"

Dodge Data noted that the election "also already provided some clarity on likely construction at the state and local level.

Voters have given their approval for several major construction-related measures in California, Colorado, Texas and North Carolina with a combined value upwards of $136 billion for education and transportation sector construction."

Its 2017, Dodge Construction Outlook report predicts total U.S. construction starts for 2017 will increase 5 percent to $713 billion, compared with gains of only an estimated 1 percent in 2016, and 11 percent in 2015.

"The U.S. construction industry has witnessed signs of deceleration in 2016, following several years of steady growth," Mr. Murray said.

"Total construction starts during the first half of [2016] lagged behind what was reported in 2015, raising some concern that the current construction expansion may have run its course. However, the early 2016 shortfall reflected the comparison to unusually elevated activity during the first half of 2015, lifted by 13 very large projects valued each at $1 billion or more, such as a $9 billion liquefied natural gas export terminal in Texas and a $2.5 billion office tower in New York City.

"...The construction industry has now entered a more mature phase of its expansion, one that is characterized by slower rates of growth than what took place during the 2012-2015 period, but still growth. Since the construction start statistics will lead the pattern of construction spending, this means that construction spending can be expected to see moderate gains through 2017 and beyond."

Dodge Data noted that the U.S. economy is expected to experience moderate job growth and more funding support from state and local bond measures.

"Although the global economy in 2017 will remain sluggish, energy prices appear to have stabilized, interest rate hikes will be gradual and few, and a new U.S. president will have been elected....Gains of 8 percent are expected for both residential building and nonresidential building, while nonbuilding construction slides a further 3 percent," Mr. Murray said.

However, the Associated Builders and Contractors Inc. (ABC) trade association is less optimistic.

"Many Americans may have thought spending in the water supply category would be booming given the recent crisis in Flint, Mich., or that highway and street-related construction would be trending higher given the passage of the FAST Act (in 2015)," according to ABC's industry outlook report.

"But despite the nation's growing infrastructure deficits, available data indicate that, if anything, American spending on infrastructure is in decline. Between August 2015 and August 2016, construction spending fell in the following public sector-oriented categories: public safety, conservation/development, transportation, sewage/waste disposal, water supply and highway/street."

American corporate profits have been shrinking due to a combination of a weak global economy, sagging exports, diminished commodity prices and low productivity, producing major economic repercussions for construction firms, ABC said.

Thus a significant number of key construction categories have experienced reduced construction spending during the past year, including manufacturing (-7.2 percent), power (-3.8 percent) and health care (-3.1 percent), according to ABC.

However, despite the continuing sluggish economic recovery, many construction firms report that they remain busy and that their most significant challenge is to find quality workers and subcontractors, ABC said.

Transportation

Dodge Data predicts public works construction will increase 6 percent, regaining upward momentum after slipping 3 percent in 2016. Highways and bridges are expected to gain from new federal funding, while environmental works should benefit from the expected passage of the Water Resources Development Act, the report said. Natural gas and oil pipeline projects are expected to maintain 2016 levels.

However, the American Road & Transportation Builders Association (ARTBA) only expects 1.3 percent growth this year in the transportation construction market, driven largely by an increase in highway and bridge private construction to support residential and commercial developments.

The ARTBA said the value of public highway, street and related work by state transportation departments and local governments fell nearly 2 percent in 2016 and is expected to decrease another 1 percent in 2017.

Bridgestone's Mr. Cole noted that the aggregates market, which is strongly tied to the construction market, had a "very strong" year in 2016 and will continue to thrive this year thanks to federal highway funding.

Another positive is that President Trump pledged to fund more infrastructure construction and updates during his presidency, he said.

Currently though, the OE tire market is hampered by an overabundance of new and used construction equipment on market, Mr. Cole said. However, the aftermarket tire business should fare better.

"Tires are going to be consumed, whether on new or used equipment, so we're going to continue to see that market chugged along in line with growth rates we saw last year," he said.

Buildings

The Dodge Construction Outlook predicted single-family housing construction will increase 12 percent in dollars, corresponding to a 9 percent jump in units to 795,000.

Access to home mortgage loans is improving, and potential home-buyers will be encouraged by continued employment growth and low mortgage rates, Dodge Data predicted, noting that older Millennials, those in the 30- to 35-year-old age bracket, are now in the market for houses.

The outlook for other types of building construction starts include:

• Multifamily housing is expected to be flat in dollars and down 2 percent in units to 435,000 after peaking in 2015.

• Commercial building will climb 6 percent on top of the 12 percent gain estimated for 2016. Office construction will make gains from very low levels in the past, along with store and warehouse construction. Hotel construction, while still healthy, will begin to retreat after a strong 2016, Dodge Data predicted.

• Institutional building is expected to get a 10 percent boost after a sluggish two years, while school construction will increase due to the passage of recent school construction bond measures. More growth is expected for the amusement category (convention centers, sports arenas, casinos) and transportation terminals.

•  Manufacturing plant construction could increase 6 percent as the sector recovers from steep declines in 2015 and 2016 with the pullback in large petrochemical plant starts.

• Electric utilities and gas plant construction will plummet another 29 percent after a 26 percent drop in 2016. The lift that occurred in 2015 from new liquefied natural gas export terminals continues to dissipate, according to Dodge Data. Power plant construction, which was supported in 2016 by the extension of investment tax credits, will ease back as new generating capacity comes on line.

Michelin warned tire dealers that construction fleets will be cost conscious with their equipment purchases this year.

"Construction customers will be increasingly focused in 2017 and beyond on the total cost of ownership and how well any given provider helps them meet their own business goals," Michelin said.

"As seen over the last few years in this sector, construction companies will also try to keep tire inventories as low as possible while meeting annual production plans as closely as possible. There will be an ongoing focus to protect company cash flows and reduce working capital."