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U.S. Factory Construction Reaches New Highs: According to the Census Bureau, as of June 2024, the U.S. 12-month investment in manufacturing plants rose to $235.5 billion, up 19% from the same period a year ago, 100% from two years ago, and 217% from the same period in 2019. These totals cover only the actual construction costs of the facilities, not the costs of the manufacturing equipment and installation. As such, the total amount invested in manufacturing plants, including equipment and installation, is much higher. For example, the total cost of a big chip plant might reach $20 billion, but the construction costs comprise the smallest part of it.
The explosion in factory construction started in the second half of 2021. It was one of the significant changes that came out of the pandemic when America’s awareness of dependence on China became apparent through massive shortages of all kinds of goods, including semiconductors, as well as unprecedented supply-chain and transportation chaos. Those challenges caused corporate America and policymakers to rethink the strategy of endless globalization. The CHIPS Act, signed into law in August 2022, was part of the effort to expand the construction of U.S. factories.
The movement away from reliance on China is based on the principle that industrial robots cost the same in the U.S. and China, that manual labor is a much smaller cost component in modern automated manufacturing, and that transportation costs (which spiked during the pandemic) and loss of Intellectual Property, which is a given in China, and other risks have to be added to cost equation. In addition, the increasingly complicated and stressed relationship between the U.S. and China has exposed the fact that the U.S.’s reckless dependence on production in China is a fundamental risk, not only for companies but also for national security. No one is going to build a factory in the U.S. to make low-value products, such as T-shirts. It’s all focused on complicated high-value products, such as motor vehicles, chips, electrical and electronic products, heavy components, and equipment.
U.S. Homebuilders Prosper Amid Housing Shortage: The U.S. homebuilding industry is experiencing a surge in demand despite challenging economic conditions. According to Forbes, mortgage rates have reached levels not seen since 2008, and home prices have increased by 30% nationally over the past four years. At the same time, a nationwide shortage of at least 4 million housing units has created a favorable environment for homebuilders. In the U.S., the S&P index of builders, which tracks the performance of homebuilding companies, has risen by 57% over the past 12 months. DR Horton, the largest homebuilder in the US, has seen its shares increase by 70% during the same period, while Toll Brothers, a luxury homebuilder, has experienced a 96% increase in its stock price. Forbes says the building boom has led to the creation of at least 12 new billionaires in the U.S. homebuilding industry.
In this challenging environment, some builders have implemented creative strategies to make homes more affordable. For example, Patrick Zalupski, Founder of Dream Finders Homes, has eliminated some higher-end features and made them optional upgrades. Zalupski tells Forbes: “We used to customize a lot more. All of that comes with a tremendous amount of inefficiency and cost. Now it’s just about trying to deliver a more affordable house at the end of the day.” Charles Bradbury, founder of Smith Douglas Homes, has developed a scheduling software called the SMART build system. This system updates trade partners and material suppliers in real-time, reducing build time to an average of 59 days from start to finish.
Builders are also adapting to current market demands. Lennar Corp, America’s second-largest homebuilder, has started producing 660-square-foot houses as wide as a driveway for as little as $137,000. This year, the company has sold nearly every lot in its first-ever tiny homes community in San Antonio. Stuart Miller, Lennar CEO and Executive Chairman, says: “Demand remains robust if it can be supplied at an attainable price point.” Meanwhile, Toll Brothers has also shifted into more affordable markets. In 2016, the company began offering smaller townhouses and homes on smaller lots at the $450,000 price point. Doug Yearley, Chairman and CEO of Toll Brothers, says: “A total of 40% of Toll Brother homes are being sold at this lower price range. In a high-interest environment, we’re doing well.”
Forbes believes the homebuilding industry’s success is likely to continue in the foreseeable future. The National Association of Realtors, a trade association for real estate professionals, predicts there will still be a housing shortage for at least the next five years, even if building activity outpaces population growth. It is also likely that both the residential and commercial construction sectors will reap some benefit as a result of the damage caused by the recent hurricanes in the southeast.
Equipment Dealers Concerned About Presidential Election: Many construction equipment dealers and contractors are concerned about how the November presidential election might impact their businesses. In a July/August poll taken by Equipment World, out of 57 dealer respondents, 68.4% said they were “very concerned” about the upcoming election, while another 26.3% said they were “somewhat concerned.”
When asked about the potential impacts of the election, some dealers pointed to persisting high interest rates, increased government spending, and tax dollars getting pulled away from infrastructure. Several expressed concerns about rising taxes, regulations, and tariffs under a Harris administration. According to one Case Construction dealer, “One presidential candidate’s acumen is proven in the private sector and in the presidency, and the other is part of the existing administration that has gotten us in the position we’re currently in.” One respondent who is not a dealer but operates in the used- equipment space said, “Instability in a number of construction markets including LNG, pipeline, etc., combined with high interest rates, inflation, and general uncertainty has slowed the purchasing and selling of equipment in the secondary market. Many of my customers are holding off until after the election to make large capital purchases unless it is a necessity for an upcoming job.”
Over 91% of the dealers said the upcoming election is impacting customers’ purchasing decisions. Several referenced a “wait and see” mentality among customers who are concerned about how the election will impact interest rates, inflation, and fuel prices. One Kubota dealer said, “The economy is a mess, and customers aren’t making large purchases.” A Develon and Sany dealer said their customers “all think the (explicative) has hit the fan” and that their used equipment sales have dropped by 35%.
In addition to dealers, 34 contractors responded to the survey. Among them, 79.4% said they were “very concerned” about the impact the election might have on their business, while another 14.7% were “somewhat concerned.” Key election impact concerns among contractors include changing regulations, fuel costs, inflation, and material costs. One responding West Coast contractor said they’re concerned the election could put a damper on upcoming projects. There is little doubt that many customers of both equipment dealers and contractors are operating with a “wait and see” mentality.
Construction Job Openings Rise by Record Amount: After several months of cooling, which experts speculate was mostly confined to the residential sector, unfilled construction positions for which contractors are actively hiring rose by 138,000, or nearly 60%, in August. According to Anirban Basu, chief economist for Associated Builders and Contractors, that jump is the largest month-over-month increase on record. On a broader scale, 4.3% of all construction jobs were unfilled in August, up from 2.7% in July. Nonetheless, the open job rate and number of openings were down slightly from August 2023.
The record increase in job openings follows several months of cooling demand for workers, which economists largely attribute to decreases in residential construction, as both commercial building and infrastructure work saw higher demand. Basu accredited much of the surge in job openings to the effects of Hurricane Beryl. “Despite this bounce back, industrywide job openings are still down 19% since hitting a cyclical peak in February, a reflection of moderating activity in the face of high interest rates and economic uncertainty,” Basu said.
The demand for construction workers remains high, as indicated by workforce surveys. The June 30 poll by the Associated General Contractors of America (AGC) indicated that nine out of ten members have open positions that they are struggling to fill. Ken Simonson, AGC chief economist, stated, “End-of-month openings exceeded the 338,000 employees hired during the entire month, implying that contractors wanted to bring on board more than twice as many employees as they were able to find”. Another sign that contractors expect to need more workers is that only 2% of construction employees were laid off or discharged in August. Per Simonson, that’s the second-lowest August layoff rate in 24 years.
Trends in Used Equipment Values
The most recent Sandhills Global market reports covering used heavy-duty construction equipment show a continuation of two trends: rising inventory levels and falling values. Within the overall heavy equipment market, wheel loaders are exhibiting the most significant increases in inventory, up 31.65% year over year in August. Dozers and off-highway trucks are right below that, but they are starting to rise. Over the next several months, Sandhills Global anticipates that we’re going to continue to see steep increases. Pricing is starting to soften as these inventory levels continue to climb, and that trend is not expected to stop anytime soon.
Specific observations regarding U.S. trends related to used heavy-duty construction equipment and lifts are as follows:
U.S. Used Heavy-Duty Construction Equipment
In the used heavy-duty construction market, inventory levels have been rising for months, including used crawler excavators, dozers, and wheel loaders. August inventory levels were up 0.78% month-over-month and 21.54% year-over-year. However, no categories have reached pre-COVID levels yet. Asking values increased by 0.46% month-over-month but are trending downward and were 4.35% lower year-over-year. Auction values decreased by 0.6% month-over-month and 9.49% year-over-year, continuing months of declines. Used excavators and wheel loaders posted year-over-year decreases slightly above 10%.
U.S. Used Lifts
Inventory levels in this market rose by 5.6% month-over-month and 21.54% year-over-year following months of growth. The most dramatic increases were seen in the rough terrain scissor lift category, which grew 12.9% month-over-month and 43.34% year-over-year. Also noteworthy is the fact that inventory in the used telehandler category was 62.1% higher than year-ago levels. Asking values were up 1.17% month-over-month but down 8.15% year-over-year and are trending downward. In the used pneumatic tire and cushion tire forklift categories, asking values were down 12.6% and 12.7% year-over-year, respectively. Auction values were up 1.14% month-over-month, down 12.62% year-over-year, and are trending sideways. Again, the used pneumatic tire and cushion tire forklift categories showed the most significant year-over-year decreases, down 20.06% and 18.83%, respectively.
Recent auction results confirm the ongoing decline in equipment values. Simultaneously, rising material costs have driven up the price of new machinery. Irontrax has never seen such a significant gap between auction results and retail prices. Dealers with excess inventory are now offering incentives to clear their fleets. Additionally, rental companies are downsizing, with surplus equipment increasingly heading to auction, further reinforcing the weakening demand. This influx of equipment into the marketplace, coupled with the strong U.S. dollar, will likely limit the number of export buyers for this surplus inventory.Although values for used equipment overall have been trending down, the exception seems to be late-model low-hour equipment. The continued demand for such equipment reflects a number of factors, including new infrastructure improvement projects, the upward trend in the cost of new equipment, economic uncertainty heightened by the upcoming presidential election, the lack of available capital, depreciation woes, costly breakdowns, and limited space availability. Considering these factors, the values of late-model low-hour equipment are likely to maintain steady levels for at least the foreseeable future, barring any unforeseen financial downturn in the markets.