The 2013 construction equipment market will benefit from improvements in housing, continued high levels of demand from the energy sector and improving non-residential construction investment by manufacturers.
Overall I expect 2013 growth of 5.4 percent compared with 2012. I expect the slowdown that began in the second half of 2012 to extend into the first half of 2013 and most of the 2013 growth to occur in the second half.
I believe rental companies will continue their aggressive re-fleeting in 2013, however, most of those purchases will be for aerial platforms. The first half of 2013 is likely to be down 5 percent to 7 percent compared with the first half of 2012 because of difficult comparisons. The first half of 2012 grew at a higher rate than the second half. Second half 2013 comparisons with 2012 will be easier, up as much as 10 percent to 20 percent.
GDP clawing up to 2 percent
Every forecast is based on assumptions. A major one for 2013: Congress and the President's compromise to avert sequestration undoubtedly resulted in higher taxes. I’ve assumed, perhaps naively, that nearly everyone will be equally affected by those higher taxes. I have also assumed that the devastation caused by Hurricane Sandy will benefit the equipment business, but I do not believe it will have a material impact on business in 2013. Furthermore, I believe that rental companies will benefit the most from the hurricane.
After a spike in Gross Domestic Product (GDP) growth of more than 4 percent in the fourth quarter of 2011, gains have been tepid, bumping along for most of 2012 at under 2 percent per quarter (Gross Domestic Product is a measure of the value of all goods and services produced by the economy). I estimate GDP will grow at about 1.5 percent in the fourth quarter of 2012 and at the same rate in the first quarter of 2013. By the end of the second quarter next year I believe we will see growth exceed 2 percent. By the end of 2013 GDP growth will approach 2.3 percent. The long term trend is more than 3 percent.
I believe demand for construction equipment will be driven by a housing-market recovery. Other types of construction are expected to grow also, but the most dramatic change will be for housing (see the table showing my estimate of the change in the value of construction put-in-place for residential and non-residential construction). Put-in-place is a measure made by the U.S. Government of the dollar amount of actual construction that takes place.
It’s possible we will see a resurgence of building in the manufacturing sector. Whether that occurs depends on the enthusiasm businesses have for programs proposed and enacted by the Obama administration.
Spending on transportation projects is expected to grow as a result of the recently enacted Federal Highway program, MAP-21. Federal funding for highways at approximately $40 billion per year for 2013 and 2014 is considered to be inadequate to replace dilapidated roads and bridges. However, it is approximately $3 billion per year more than the previous program.
The highway bill provides two years of funding which gives state governments a longer planning horizon for large projects. The previous series of two month extensions curtailed planning by the states because of uncertain future funding. Unfortunately, many states now have much lower tax revenues and can’t afford to fund new highway projects.
Housing to hit 1 million
My view on housing is fairly positive – I believe it will provide the main strength for the machinery marketplace. The housing market is still at a historic low point, but the good news is housing starts are growing and unlikely to go lower. Recent percentage gains have been dramatic – up more than 30 percent year-over-year.
Housing grew very slowly throughout 2012. Starts bumped along the bottom of the accompanying graph at an annual rate of between 400,000 and 500,000 units starting in mid-2008 through 2010. It was the lowest level recorded. The decline from early 2007 to mid-2008 was unprecedented. The market is slowly clawing its way back to an annualized rate of one million units.