Construction in 2011

The U.S. equipment rental industry enters 2011 with cautious optimism, following encouraging third-quarter reports from leading consolidators and major manufacturers. Of course, the success of the equipment rental industry hinges on the health of the construction market. With that in mind, we talked to many leaders within various facets of the construction industry to find out what they see in their crystal ball for your customers in the coming year.

Government funding - the foundation of construction recovery

Ken Simonson, chief economist at Associated General Contractors of America (AGC), says the American Recovery & Reinvestment Act (ARRA) kept highway construction from falling into a steep decline in 2010. Many contractors were able to avoid layoffs or to hire workers. "The Act provided funds quickly to every state and the money was largely spent on high-priority projects," he says. "States got a great bargain and were in many cases able to fund more projects than expected because of lower materials costs and fierce bidding by contractors."

However, total highway construction spending in the first 10 months of 2010 was unchanged in the same period of 2009, so clearly not all highway contractors came out ahead. "There is enough spare capacity in the highway construction industry to support an even higher level of funding," Simonson says.

Jack Basso, director of program finance & management for the American Association of State Highway and Transportation Officials (AASHTO) says the ARRA did help stabilize construction employment. "Before the stimulus package, the construction unemployment rate was heading toward 28% and now it's closer to 20%," he notes. "We’re pretty happy, as well, with the amount of resurfacing and repair work and material used as a result of the program."

He warns, "When this money disappears, so will about 300,000 jobs. The industry will need alternative funding."

For its part, the concrete pavement industry welcomed the ARRA initially, says Leif Wathne, P.E., vice president of highways and federal affairs at the American Concrete Pavement Association (ACPA). "In terms of the actual program, however, it had mixed results... There were some highway, roadway and airport pavement construction projects started and completed quickly and efficiently. But we simply need to do more to improve the capacity and condition of our nation’s surface transportation infrastructure."

Wathne adds the short-term gains realized from the ARRA will be lost without a robust highway bill now. "It is for this reason the ACPA is urging quick passage of a multi-year highway bill, as well as the required funding mechanism, such as an increase in the federal motor fuels tax," he says.

The much-anticipated highway bill remains stalled but, like Wathne, several construction leaders are pulling for a quick passage.

"The greatest impact [of passage] will be to provide certainty," says Jeffrey Solsby, director of public affairs for the American Road & Transportation Builders Association (ARTBA). "That certainty governs decisions by contractors, suppliers, materials and equipment firms to hire, invest and expand. You don’t make a major investment or expansion decision — or plan to buy a $10-million piece of equipment - based on one year’s worth of work. You make it based on five to six years of work in the pipeline. That federal certainty will also help the states plan their own work. Right now, we’re seeing nearly half of all states - even with the ARRA — cut their transportation budgets."

Wathne says the answer to the question of what impact the bill will have on the concrete pavement industry will depend largely on the scale of the program. "Even so, we expect the bill, when signed into law, will help reduce the high unemployment in the construction industry; create good jobs; and allow companies and agencies to plan for both the short-term and long-term needs of the federal-aid highway system."

General construction to remain flat