The Road Ahead: What You Need to Know About Construction in 2012

As an equipment rental business, it’s your job to serve contractors involved in many trades, including residential and commercial construction, not to mention concrete and road building. In order to do it effectively, you need to have your finger on the pulse of the various sectors your customers work within, and it’s vital to have a solid understanding of the factors effecting change.

With the American Recovery & Reinvestment Act (ARRA) stimulus package coming to a close, the mid-September extension of SAFETEA-LU and the early-November approval of the MAP-21 two-year highway reauthorization, many of you are wondering — what’s coming down the road for construction in 2012? What will my customers face in the coming year and how will it affect my business?

Rental: What are the biggest hurdles impacting construction’s recovery as we move into 2012?

Ken Simonson, chief economist, Associated General Contractors of America (AGC): The overall construction industry should show slow improvement in 2012, as apartment construction and several private nonresidential categories gather steam. But public construction will be squeezed by tight budgets, office and retail will remain sluggish, and homebuilding is still a huge question mark. The economy is likely to grow at 3% or less, with stubbornly high unemployment. These factors will hold down government revenues of all types and will make consumers and businesses wary of long-term commitments such as construction.

The biggest growth [in construction spending] will be in apartments, manufacturing, distribution (warehouses, truck, rail and port facilities) and energy (especially around shale formations). Public spending will shrink in most categories, led by school construction, which depends heavily on still-fading property tax collections.

Anirban Basu, chief economist, Associated Builders and Contractors (ABC): As federal stimulus projects wind toward a close, 2012 could represent a year of decline, particularly in the latter half of the year. Overall nonresidential construction activity will be flat, as a handful of segments such as power, health care and manufacturing experience rising construction spending volumes, while a number of other segments remain in retrenchment. Shrinking state and local capital budgets remain a headwind for the nation’s construction industry.

Ed Sullivan, Chief Economist, Portland Cement Association (PCA): We will avoid a recession. Although the private sector is weak, it is being boosted by payroll tax holidays and the extension of unemployment benefits. If those go away at the end of 2011, it puts us in jeopardy of slower performance in the first quarter of 2012. This could generate adverse momentum.

The construction industry has been hit hard, but the incremental downturn that additional weaknesses in the economy would apply won’t affect much. It will simply delay recovery. At best for 2012, we can expect the overall industry to be flat.

Rental: What will 2012 look like for highway contractors?

Alison Premo Black, senior economist, American Road & Transportation Builders Association (ARTBA): We are forecasting market decline of about 6% for both highway pavement and bridge work in 2012, down to $72.6 billion. The key reasons for the projected downturn: continued weak growth in the overall U.S. economy, the end of transportation-related stimulus funding, persistent state and local budget challenges and a static federal-aid highway program.

The bridge market, which has experienced several years of growth, is expected to drop from $26.3 billion to $23.6 billion. Pavement work is expected to continue to decline slightly from an estimated $45 billion in 2011 to $44.1 billion in 2012. Other work, which includes smaller projects that are highway related, but not specifically bridge or pavement work, is forecasted to decline from $5.6 billion in 2011 to $4.8 billion in 2012.