Posted by Tom Lombardo on Thu, Feb 12, 2015 @ 07:00 AM
Now that the construction industry has finally regained its footing, heavy equipment dealership owners and managers face the difficult task of trying to foresee what their contractors will need and how they’ll want to pay to for it.
We’re polishing our crystal ball as furiously as you are, and while it’s still not giving us clear answers there’s certainly a happy glimmer coming into focus.
First of all, U.S. construction firms added nearly forty thousand workers in January, capping a thirteen-month streak of hiring by bringing the industry’s total employment to 6.314 million people, and clearly indicating that most firms expect a healthy spring and summer.
The White House, Congressional Budget Office and Federal Reserve all agree that we’re at the beginning of what may be the best years we’ve seen in over a decade. The White House even expects unemployment to fall below 5% before year’s end, which would have a profound ripple effect in an economy as reliant upon consumers as ours.
What and Where
And the construction industry appears to be right in line with this as four in five think the market will grow and plan to hire more people.
Even more importantly, for our purposes, is the fact that nearly as many – three in four – plan to lease or buy new equipment this year.
For the last several years developers built practically nothing other than apartment houses, and thankfully it’s looking like that was a stable investment. Renters now make up the majority of the population in nine of the nation’s eleven largest metro areas, which is a significant up tick since before the recession.
This happened because incomes stagnated and made it impossible for most families to buy in those same cities. While high-priced areas like New York and San Francisco have always had this problem, it now affects even relatively inexpensive metro areas.
And it’s not by choice.
The National Association of Home Builders conducted a survey and found that four out of five Millennials want to own a three bedroom house. Two thirds of them want that home to be in the suburbs, with another quarter wanting to live farther out in rural areas.
It might be that all the recent multi-family building met a short-term demand. And if that demand was dictated by economic need, we might be poised to see it settle down as soon as the need dissipates.
Which may explain why housing starts hit their highest level since 2008 in December. It’s not a black-and-white indicator, because permits for housing dipped at the same time, but we might expect something like that as the recovery finds its legs.
Starts for 2014 rose 8.8% -- not incredible, but certainly substantiating your contractors’ belief that a slow and steady recovery is underway. More importantly, December also had 17.2% more speculative houses for sale than a year earlier, so at least some builders optimistically expect buyers to materialize in the spring. Again, it’s not black and white, because the nationwide total of all new home sales in 2014 amounted to less than 60% of the annual average from before the recession.
PLEASE Let Me Build a Bridge
Housing, fortunately, responds predictably to market forces. But infrastructure, which most construction firms dearly miss building, is an unpredictably bouncing political football.
The American Society of Civil Engineers gives our nation’s infrastructure a “D+” and estimates we need to invest $3.6 trillion to build the infrastructure we ought to have. There’s plenty of demand for these improvements, but little political will to find a way to fund them.
In fact, the House almost seems hostile to infrastructure investments. Its budget would cut funding for transportation projects by 93% to avoid imposing additional taxes.
While engineers want to expand funding dramatically, the House wants to cut it just as dramatically, eliminating an estimated 186,000 jobs in the process. And the House is not joking – it already made history by shutting down all construction that was to be financed by the Highway Trust Fund, something that has never happened in the Fund’s 59-year history, and it wants to cut another $167 billion from federal transportation programs over the next ten years.
President Obama, facing a Republican Congress in the last two years of his administration, has a suggestion: taxing American companies’ overseas profits to raise $478 billion for infrastructure investment. But given the House’s actions so far, it’s probably not a good idea to base your business development on this passing.
Apartments and Houses It Is
Maybe the best assumption to make this year is that multifamily building will continue apace and that home building will pick up. If the job situation improves as much as hoped, you can add remodeling to that as well.
And while your crystal ball is almost certainly clearer than ours, one thing we can predict with confidence is that the role of paper checks in your business won’t change at all this year – or for the next several years.
The most recent Federal Reserve payments study soundly found that “billions of paper checks continue to be written by businesses each year,” and that “among large businesses checks represent more than half of payments sent and received; among small and micro businesses, these percentages are more than 70 percent and 90 percent, respectively.”
The Fed also concluded that no new payment method can yet challenge the role of checks as they are used today.
They’re critical to your business, and that’s why we have so many specialized products and services to make sure you can confidently close every deal where your buyer presents a check, and to make sure you receive every dollar you earn. Learn more about check guarantee here.