Following severe losses throughout the recession, the construction equipment industry posted strong growth in 2010 and is expected to continue expanding in 2011. Will the rebound be enough to offset earlier declines?

Like many market sectors, the construction equipment manufacturing industry suffered major declines in the 2008-2009 period. However, in 2010 the industry recorded a strong upswing in business activity that resulted in overall growth and laid the groundwork for a robust recovery. Although short-term prospects appear positive, compensating for recessionary losses will require a sustained increase in global construction activity.

According to a business outlook survey released by the Association of Equipment Manufacturers (AEM) last month, United States construction machinery manufacturers estimate that their overall business activity experienced 6.4 percent growth in 2010. Survey respondents forecast the growth rate to continue accelerating, climbing to 12.7 percent in 2011 and 14.8 percent in 2012, before slightly slowing to 13 percent growth in 2013.

The North American-based international trade group’s findings also reveal that Canada’s construction equipment manufacturing industry likely grew by 8.2 percent in 2010, and is expected to make record gains of 12 percent this year, 14.8 percent in 2012 and 12.7 percent in 2013.

On a global level, North American construction equipment manufacturers’ business with the rest of the world is estimated to have increased by 14.7 percent in 2010. Moreover, it is projected to grow by 11.8 percent in 2011, 12.5 percent in 2012 and 11.2 percent in 2013.

Despite these gains, it is important to note that the construction equipment industry lost between 30 percent and 50 percent of its business in the 2008-2009 period, meaning a full recovery will require years of continued, strong expansion. AEM says that sustaining this growth will require renewed focus on U.S. infrastructure and trade policies.

“This hopeful outlook will be difficult to achieve without action now on transportation infrastructure legislation and export-promotion policies,” AEM President Dennis Slater said in an announcement of the findings. “Infrastructure investment and export agreements are proven ways to create and maintain jobs for U.S. workers, for a sustainable recovery and meaningful uptick in equipment demand.”

When asked which factors had the biggest impact on construction machinery sales, survey respondents cited the stagnant housing market as the strongest negative influence, followed by the general state of the economy and access to credit. Increased export demand was the primary positive influence, followed by interest rates and military spending.

“The housing market is still very weak, stimulus-funded projects are nearing an end, and state and local budgets continue to shrink,” Slater added. “Unemployment in the manufacturing sector remains stubbornly high. In construction, unemployment is still about double the national average; for example, construction unemployment was 18.8 percent for November 2010.”

Global construction activity is expected to play a vital role in the construction equipment industry’s future success, as rising exports among U.S. manufacturers have made international markets more valuable. However, construction spending within the U.S. itself may remain stagnant for the foreseeable future.

According to a late-2010 report from economic research firm IHS Global Insight, total construction spending in the U.S. declined by 8.3 percent in 2010 and is forecast to continue decreasing in the first half of 2011. However, both commercial and residential construction markets are expected to improve in the second half of 2011, resulting in a flat growth rate for the year.

Despite the mixed forecast for construction spending in 2011, construction companies worldwide are optimistic about the new year. A recent report from tax advisory firm KPMG found that nearly half of construction firms expect rising backlogs in 2011 due to pent-up demand and plan to expand into new services or international markets. This renewed focus on building demand is likely to result in increased equipment purchasing on a global level.

“The willingness of contractors to move into new markets, and possibly to evolve their value proposition, could be the difference between thriving and merely surviving,” Geno Armstrong, international sector leader of KPMG’s engineering and construction practice, said in an announcement of the findings. “With margins unlikely to rise for traditional business, such a repositioning could be vital. North American firms can learn a tremendous amount from the experiences and successes of their counterparts in other markets, particularly the ways in which projects are being financed.”

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Resources

2011 Construction Equipment Outlook
Association of Equipment Manufacturers, December 2010

…Manufacturers Predict Modest Upticks in Business through 2013
Association of Equipment Manufacturers, Dec. 16, 2010

U.S. Construction Quarterly Briefing — Executive Summary
IHS Global Insight, 2010

Adapting to an Uncertain Environment
KPMG International, 2010

Global Construction Industry ‘Mildly Bullish’ for 2011…
KPMG, Dec. 7, 2010