As U.S. construction market growth is expected to slow down in 2020, tire dealers should increase their role as consultants to their construction customers who are striving to eke out the most from their equipment.
"At the end of the day, everyone's going to be looking at where is the best use of their money when it comes to their machinery and their tires," according to Bruce Besancon, vice president, off-the-road sales, Yokohama Tire Corp., who said the construction market in North America, which is tied to housing starts and gross domestic product, fared well last year.
The OE construction tire market declined 3.8% in 2019, while tire replacement in infrastructure rose by 2.4% through November 2019 versus 2018, according to Michelin North America Inc.
"The year got off to a great start but slowed down in the second half," said Paul Hawkins, Titan International Inc.'s senior vice president, aftermarket sales, North America. "Overall, we were flat to down slightly versus 2018. On the OE side, a November 2019 report showed a 14% decline in construction vehicle turnover versus a year earlier, which has an impact on our business."
"We expect the construction industry to remain stable in 2020," said Tim Netzel, marketing director, off-the-road, U.S. and Canada at Bridgestone Americas Tire Operations.
"In this segment, we have seen positive trends in spending, with nearly 156,000 jobs created in the last year alone, according to the Associated General Contractors of America. Additionally, pending infrastructure reform could drive a stable construction industry for the foreseeable future. We expect this stability to translate to the tire market, as well."
Dodge Data & Analytics L.L.C., in its 2020 Dodge Construction Outlook, predicts that 2020 U.S. construction starts will slip 4% from the 2019 estimated level of activity.
"The recovery in construction starts that began during 2010 in the aftermath of the Great Recession is coming to an end," Richard Branch, chief economist for Dodge Data & Analytics, declared.
"Easing economic growth driven by mounting trade tensions and lack of skilled labor will lead to a broad-based but orderly pullback in construction starts in 2020. After increasing 3% in 2018, construction starts dipped an estimated 1% in 2019 and will fall 4% in 2020."
Mr. Branch said that while economic growth is slowing, it is not anticipated to contract this year. So while construction starts will decline, the level of activity will remain close to recent highs. The dollar value of starts for residential buildings will slide 6%, while starts for both non-residential buildings and non-building construction will drop 3%.
According to the Dodge report:
- Single-family housing starts are expected to dip 3% in 2020. Affordability issues and the tight supply of entry-level homes have kept demand for homes muted and buyers on the sidelines.
- Multi-family construction experienced eight years of growth since 2009, however, multi-family vacancy rates have moved sideways over the past year, suggesting that slower economic growth will weigh on the market in 2020. Multi-family starts are predicted to drop 13% in dollars.
- The dollar value of commercial building starts will fall 6% in 2020. The steepest declines will occur in commercial warehouses and hotels.
- The dollar value of manufacturing plant construction will slip 2% in 2020, following an estimated decline of 29% in 2019 due to rising trade tensions, suggesting the manufacturing sector is in contraction.
- Recent federal appropriations have kept funding for public works construction either steady or slightly higher — translating into continued growth in environmental and transportation infrastructure starts.
- Labor shortages plague the industry, and the impact of tariffs continues to be felt, despite a slight drop in the levels of concern about material and equipment prices and availability.
Despite the slowdown, construction companies are expected to continue investing in equipment, according to the Equipment Leasing & Finance Foundation.
Credit market conditions remain broadly healthy, the foundation said, noting that financial stress remains subdued and credit supply, while slightly tighter, still is not a cause for concern.
"However, demand for credit — especially by businesses — has weakened notably, which may portend a further slowdown in business investment in 2020," the foundation said.
After decelerating over the course of 2019, the U.S. economy appears poised to soften further in 2020. Equipment and software investment is on track for its weakest year of growth since 2016, weighed down by an annualized contraction in the third quarter — the first negative reading in over three years, the foundation said.