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Manufacturing Construction Surges Across the U.S.: The U.S. continues to gain ground on other countries’ manufacturing dominance a year after President Biden signed the $52 billion CHIPS and Science Act in August 2022. According to the White House, the renewed push to revive American manufacturing after decades of offshoring has led to over $628 billion in private company investment. The multibillion-dollar investments scattered across the country range from biotechnology facilities and chip fabrication plants to electric vehicle battery factories and clean energy projects.
Some major manufacturing projects recently added include a $10 billion partnership with leaders from the semiconductor industry such as IBM, Micron, Applied Materials and others to build an advanced semiconductor research and development center in Albany, New York, and Amkor’s $2 billion semiconductor facility in Peoria, Arizona. Through October, manufacturing construction spending increased 71.2% in 12 months, according to an Associated Builders and Contractors analysis. On a seasonally adjusted annual rate, spending in the sector hit approximately $206.85 billion in September.
According to Richard Branch, chief economist at Dodge Construction Network, that exponential growth isn’t expected to hit any speed bumps. “Public dollars are flooding into the manufacturing and infrastructure sectors,” said Branch. “That’s leading to significant growth over the last year.” The CHIPS Act provides $52.7 billion for American semiconductor research, development, manufacturing and workforce development. This consists of $39 billion in manufacturing incentives, including $2 billion for the legacy chips used in automobiles and defense systems, $13.2 billion in research and development and workforce development and $500 million to strengthen global supply chains. The CHIPS Act also provides a 25% investment tax credit for capital expenses for manufacturing of semiconductors and related equipment. Additionally, several $1 billion or more manufacturing projects remain in the pipeline. That should keep construction starts in the sector elevated for the foreseeable future.
Construction Fatalities Exceed Those of Other Industries: During 2022, more construction workers died on the job than in any other industry sector. According to a report released by the Bureau of Labor Statistics, a total of 1,069 construction professionals died while working, equivalent to a rate of 9.6 fatalities per 100,000 full-time workers. The industry’s fatality rate was third highest, behind agriculture, forestry, fishing and hunting (18.6 per 100,000) and transportation and warehousing (14.1 per 100,000). For more than a decade, the fatality rate in construction has hovered around 10 deaths per 100,000.
In certain specific job categories, construction also accounted for several of the most dangerous professions. Roofers ranked as the second most dangerous profession, with 57.5 deaths per 100,000 workers, behind only loggers. Helpers in the construction trades marked a rate of 38.5 and structural steel and iron workers a rate of 21.3, ranking fourth and eighth, respectively.
The most common fatal events or exposures in 2022 consisted of 410 falls, slips and trips; 243 transportation incidents; 194 exposures to harmful substances or environments; and 149 resulting from contact with an object or a piece of equipment.
The Associated General Contractors of America is an organization of qualified construction contractors and industry related companies dedicated to skill, integrity and responsibility. It is composed of more than 27,000 member firms. To address the ongoing problem with construction related injuries, it continues to share safety training programs with members, promote the sharing of best practices, and reward those with the most effective safety programs. It regularly engages with influential members of Congress and top officials with the federal agencies to implement legislative and regulatory geared toward improving the quality of the construction environment and protecting the public interest.
U.S. Single-family Housing Starts Swell: On December 19, the Commerce Department reported that November permits for the future construction of single-family housing increased to the highest level since May 2022. Single-family housing starts, which account for the bulk of homebuilding, jumped 18.0% to a seasonally adjusted annual rate of 1.143 million units, the highest level since April 2022. The level of activity was likely supported by mild temperatures and dry conditions. Single-family homebuilding soared in the Northeast, Midwest and the densely populated South, but declined in the West.
Analysts now anticipate that housing starts could gain further momentum, with declining mortgage rates, incentives from builders likely to draw potential buyers back into the housing market, and the acute shortage of previously owned homes available for sale. During the first half of December, the interest rate on 30-year fixed-rate mortgage loans averaged 6.95%, down from a 23-year high of 7.79% in late October. At the same, many builders continue to reduce home prices to boost sales. In addition, economists recently raised their fourth-quarter GDP growth estimates, and predict that the housing market will help the economy avoid a recession next year. “American housing demand is permanently higher than before the pandemic since people are spending more time at home,” said Bill Adams, chief economist at Comerica Bank in Dallas. “As long-term interest rates fall, builders will add more supply to the housing market to meet that demand, fueling economic growth.”
According to the National Association of Realtors, the inventory of previously owned homes on the market is just above 1 million units, well below nearly 2 million units before the COVID-19 pandemic. Realtors estimate that housing starts and completion rates need to be in a range of 1.5 million to 1.6 million units per month to bridge the inventory gap. “The drag on GDP from weak residential investment is starting to diminish,” said Jay Hawkins, a senior economist at BMO Capital Markets in Toronto. “However, it will take some time to balance supply and demand and improve affordability.”
Contractors’ Top Concerns Heading into 2024: Heading into 2024, many contractors are concerned about how a potential downturn in the economy or a recession will affect their business. Unfortunately, experts anticipate continued slowdowns in construction due to supply chain bottlenecks, rising costs and high-interest rates. Since these challenges aren’t likely to be resolved any time soon, knowing what issues the industry faces can help contractors plan for success.
Labor Shortages
Companies across all industries are struggling to hire and retain good workers, but the construction industry has been hit particularly hard. Demand for construction workers is at an all-time high but the number of skilled workers is lower than ever as 91% of all contractors reported having trouble filling positions.
Supply Chain Disruptions
The supply chain is still recovering from the massive bottleneck caused by COVID-19. Additionally, U.S. contractors are feeling the strain of the Build America, Buy America Act, which impacts federally funded construction projects and requires that more parts and materials be purchased in the U.S. Unfortunately, many companies have had challenges attaining U.S.-made materials due to a current lack of manufacturing capacity for certain items.
Inflation and Material Costs
According to Associated Builders and Contractors, construction input prices have increased by 37.7% since 2020 and by 4.9% since last year. Although the cost of lumber and softwood lumber decreased by 12.3% and 44.1% respectively, other materials have seen sharp increases in recent months. Concrete products are 14.8% higher than last year and the 12.2% increase in the cost of construction machinery and equipment has contributed to the growing popularity of construction equipment rentals.
On the bright side, many economists and contractors believe the economy is still strong enough to keep the industry out of serious trouble. Those with experience believe that to not only survive but thrive during uncertain times companies must stay informed, plan for setbacks, focus on obtaining and retaining workers and safeguard valuable materials.
Even in these uncertain times, the construction industry has staying power and so do the contractors who represent it. By staying ahead of challenges, working together, cutting costs and maintaining hope for the future, the industry is likely to come out stronger than ever.
U.S Construction Spending Rises for 11th Consecutive Month: Construction spending rose in November as companies and the government continued to ramp up projects across the U.S. According to the Commerce Department, spending on construction projects rose 0.4% in November to $2.04 trillion. However, that figure fell short of expectations as economists were projecting a rise of 0.6%. Nonetheless, through November construction spending was up every month in 2023.
Construction spending typically reveals how much the government and private companies spend on projects including housing and highways. Generally, the more the U.S. spends on construction, the higher the level of economic activity. Over the past year, construction spending is up 11.3%. In terms of residential real estate, private residential construction rose 1.1% in November, with single-family construction rising 2.9% and multi-family construction rising 0.1%. During the same period, spending on public residential construction declined by 2.2%.
Trends in Used Equipment Values
According to the latest market reports from Sandhills Global, throughout 2023 supply increases for used heavy-duty trucks, semitrailers, tractors, construction equipment, and lifts have not been accompanied by corresponding increases in demand. This has led to declines in asset values in most equipment, truck, and trailer categories. This trend is especially pronounced within the heavy-duty truck and semitrailer markets, which have declined continually since their values last peaked during the second quarter of 2022. Key points in U.S, trends related to used heavy-duty construction equipment and lifts are as follows:
U.S. Used Heavy-Duty Construction Equipment
The U.S. supply of used heavy-duty construction equipment has been growing for several months, but this has not been matched by strong demand. In October, inventory levels increased 1.46% month-over-month and were up 13.54% year-over-year. Asking values have been trending down, but increased slightly, by 0.15% month-over-month, in October. On a year-over-year basis, asking values were 2.62% lower, reflecting a growing market for used heavy-duty construction equipment. Auction values were down 1.59% month-over-month and 7.8% year-over-year, adding to months of decreases, which indicates a weaker auction market for used heavy-duty construction equipment.
U.S. Used Lifts
The supply of lifts in the U.S. has been rising for months. This did not change in October, with inventory levels posting increases of 1.73% month-over-month and 16.11% year-over-year. Meanwhile, asking and auction values have been falling for consecutive months. Asking values dropped 1.84% month-over-month and 2.32% year-over-year in October. Auction values decreased 3.28% month-over-month and 12.02% year-over-year.
Although 2023 has seen a general downward trend in most used equipment asset values, that appears to be driven by the pricing for older higher-hour construction equipment. At the same time, Irontrax has observed that the demand for late-model low-hour equipment continues to be strong despite increasing inventory levels. In the crane industry, for example, strong demand persists and the longer-than-average lead times for new equipment have bolstered the resilience of used values. As the prices for new equipment continue their upward trend, manufacturers such as Tadano and Liebherr have implemented price increases surpassing 20%, adding further strength to the used equipment market.
With future price hikes for new equipment anticipated in both the construction and trucking sectors, the values of late-model low-hour equipment are expected to maintain steady levels through 2024, barring any unforeseen financial downturn in the markets.