special report 2019 annual report & forecast...provided as a service to the industry through the...

Provided as a service to the industry through the partnership of Construction Equipment and Case Construction Equipment.

SPECIAL REPORT

2019 ANNUAL 2019 ANNUAL REPORT & FORECASTREPORT & FORECASTConstruction Overview | Equipment Fleets | Transportation Water Infrastructure | Home Building | Nonresidential

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©2019 CNH Industrial America LLC. All rights reserved. CASE is a trademark registered in the United States and many other countries, owned by or licensed to CNH Industrial N.V.,its subsidiaries or affi liates.

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2019 ANNUAL REPORT & FORECAST

INTRODUCTION

By ROD SUTTON, Editorial Director

Firmly Pointed In the Right DirectionLast year brought bold moves

that bolstered nearly every realm of the construction indus-

try. Tax cuts and reduced regulations buoyed the stock market, and many construction firms geared up for a continuation of the growth seen during 2017. Then came the tariffs tiff, igniting a trade war affecting broad swaths of the nation’s economy.

The optimism of early 2018 began to ebb. The mid-term elections were less disruptive than expected, but the year ended with a bit more uncertainty than it began.

The industry as a whole performed well in 2018, and expectations remain broadly positive for this year. The momentum of 2018 should keep push-ing construction forward. Ken Simon-son, chief economist for the Associated General Contractors of America, said this in his analysis of the first nine months of 2018:

“Construction spending has increased among nearly every proj-ect type and geographic area this year. Despite month-to-month fluctu-ations, the outlook remains positive for modest to moderate increases in most spending categories at least through the first part of 2019. How-ever, damaging trade policies, labor shortages and rising interest rates

pose growing challenges to contrac-tors and their clients.”

The many surveys cast at the end of 2018 that make up our Annual Report & Forecast support this conclusion.

Respondents are managers in the various construction markets. Con-struction Equipment has surveyed equipment users and construction managers about business and fleet performance for nearly 35 years in

order to present an annual business review and outlook for the industry.

We again partnered with several sibling publications in specific con-struction vocations for a broad view of the construction industry. Our Scran-ton Gillette/SGC Horizon partners include Building Design+Construction, representing the nonresidential mar-ket; Professional Builder, representing

the homebuilding industry; Roads & Bridges, on the transportation front; and Water & Wastes Digest, which covers the country’s water infrastruc-ture issues.

Inside our 2019 Annual Report & Forecast, we report on the industry as a whole, then each magazine’s edi-tor analyzes their individual market for a more detailed look at the upcoming year.

We express our appreciation and thanks to Case Construction Equip-ment for its continuing partnership with us in presenting this analysis of the construction industry. Case is a full-line manufacturer of earthmoving equipment, and its support of this proj-ect allows us to publish substantial amounts of data and analysis for the industry’s use.

The industry as a whole performed well in 2018, and expectations remain broadly positive for this year. The momentum of 2018 should keep pushing construction forward.

Construction Equipment/Annual Report & Forecast | January 2019 3

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January 2019 | Construction Equipment/Annual Report & Forecast4


Business scored a second con-secutive positive year in 2018, although disappointment in the

water infrastructure and home build-ing markets kept it from being a broad win across all construction vocations. The numbers broke more favorably when scored by region, with all report-ing that 2018 was a “very good” or “excellent” year for business, accord-ing to results from this year’s Annual Report & Forecast. The performance in 2018 mirrored business expectations provided at the end of 2017.

Transportation, nonresidential, and fleet managers scored last year as “very good,” and each forecast the same for 2019. The momentum begun in 2017 appears to be sustainable in these vocations. Home building and water infrastructure also expect 2019 to

perform better, after each fell short of expectations in 2018. Respondents in the home building arena expect to move into “very good” territory this year; those in the water industry expect to move from an “average” 2018 to a “good” 2019. Each of these markets is covered by Scranton Gil-lette/SGC Horizon publications, sib-lings to Construction Equipment.

According to Ken Simonson, chief economist for the Associated General Contractors of America, September 2018 construction spending was up 5.5 percent over January of that year. Both public and private spending were up in September, 7 percent and 5.1 percent, respectively. Spending is expected to stay “robust” in 2019, he said.

“Despite month-to-month fluctua-tions, the outlook remains positive for

modest to moderate increases in most spending categories at least through the first part of 2019,” Simonson said in November.

In our surveys, all regions of the country reported that last year was “very good,” with New England per-forming better than its expectations with an “excellent” year. New England is joined by the Southern Plains region in forecasting an “excellent” 2019, with all other regions expecting another “very good” business year.

Business ratings for 2019 are fleshed out by contract revenue expectations for the year, a forecast that indicates growth beyond that seen in 2018. About 56 percent of respondents expect revenue to grow this year. Sub-tract the 8 percent expecting it to decline, and the net is 48.1 percent.

INDUSTRY OVERVIEW


A Win is a Win

All regions expected 2018 to be a “very good” year for business,

which is was. New England beat expectations, scoring 2018 an

“excellent” business year.

Expectations for 2019 remain high for New England, and Southern

Plains joins in the “excellent” forecast. Other regions expect this

year to be like 2018: “very good.”

Source: Construction Equipment/Case Construction Equipment Annual Report & Forecast Survey

2018 Industry Business Report

DEMD

DC

GA

SC

NC

VAWV

FL

AZ

NV

ID

CO

MT

NM

UT

WY

ALMS

TN

KY

TX LA

AROK

NH

VT

MA

RICT

ME

NJPA

NY

IA

MO

MN

KS

NE

ND

SD

CA

OR

WA

AK

HI

IL

WI

OHIN

MI

Note: Excludes Transportation.

Forecast Excellent V. Good Good Average Off Poor


2019 Industry Business Outlook

DEMD

DC

GA

SC

NC

VAWV

FL

AZ

NV

ID

CO

MT

NM

UT

WY

ALMS

TN

KY

TX LA

AROK

NH

VT

MA

RICT

ME

NJPA

NY

IA

MO

MN

KS

NE

ND

SD

CA

OR

WA

AK

HI

IL

WI

OHIN

MI

Note: Excludes Transportation.

Forecast Excellent V. Good Good Average Off Poor

5Construction Equipment/Annual Report & Forecast | January 2019


Home building respondents are the most optimistic, with a net of 51.3 per-cent, and water is the least, recording a net of 39.8 percent.

There are several regions where optimism ranks even higher. In the Mid-South, the net of those expecting revenue increases minus those expecting decreases is 61.7 percent. Hovering near a net of 60 percent is the South Atlantic at 59.5 percent, Mountain at 58.5 percent, and Pacific at 57.7 percent.

Expectations are that bid prices will increase in 2019. Overall, 78.5 percent of respondents expect prices to go up, and only 2.1 percent expect them to go down. The net is 76.4 percent. Outli-ers are nonresidential, with a net of 83.3 percent, and transportation at 65.8 percent. By region, Mountain respondents reported a net of 83.8 percent, with 84.6 percent expecting bid prices to rise and 0.8 percent expecting decreases.

Material prices continue to pressure bid prices, with tariffs perhaps intensi-fying that this year. For the construc-tion industry, 87.1 percent expect material prices to increase this year, and after subtracting the 0.9 percent expecting decreases, the net is 86.2 percent. Home builders reported the lowest net, 80.7 percent. The Mountain region reported the highest, 90 per-cent, with none predicting decreases in materials prices.

Two of three respondents labeled their markets as “intensely competi-tive” or “very competitive,” the same as in last year’s study. Fleet managers reported the most competition, with 72 percent calling it “intensely” or “very” competitive, perhaps because rising

Revenue growth is expected to continue grow in 2019, with net percentages up only

slightly from last year.

Annual Report & Forecast Methodology:Scranton Gillette Communications and SGC Horizon publish several magazines in the construction sector. Participants in

the 2018 Annual Report & Forecast asked their subscriber bases about not only overall construction trends, but also trends

specific to the sector in which they work. Each publication sent email invitations to its subscriber base, inviting participation

in an online survey. About 1,000 responded. Respondents by market include fleet managers, 275; transportation, 126; water

infrastructure, 104; nonresidential, 296; homebuilders, 237.

Last year was “very good” according to respondents in transportation, nonresidential, and

fl eet management. Water infrastructure fell short of expectations. For 2019, water is the

only vocation not expecting a “very good” business year.


Poor

Off

Avg

.G

ood

V. G

ood

Exce

llent

Business Year Ratings(actual vs forecast, all industries)

20182019 (f)

NonresidentialFleets Transportation Water Home Building

Fleets

Transportation

Water

Home Building

Nonresidential

Revenue Expectations(percentage expecting increase minus decrease, net)

54%

49%

40%

51%

46%




equipment prices are boosting rates, which are then passed along in bids (see page 7 for more details on fleet price increases). The most competitive region is New England, with one-

quarter of respondents saying it is “intensely competitive.”

Overall firm health solidified in 2018, with 77.6 percent reporting that it was “very good” or “good,” the same

percentage as in last year’s study. Water respondents were below the industry average: About two-thirds of water firms indicated health was “very good” or “good” in 2018.

INDUSTRY OVERVIEW

Material prices, including steel with the potential for pressure

from tariffs, will undoubtedly climb in 2019. Nets are in the

80-percent range across vocations, with nonresidential nearing

90 percent.

Expectations for 2018 bids vary by vocation, although there is

little doubt bids will generally increase. Nonresidential respon-

dents have the highest net, with 83 percent, and transportation

reports a net of 66 percent.

Respondents across every region of the country expect material

prices to increase in 2019, perhaps driven by the expectations that

tariffs will drive up steel prices. The highest nets were in Mountain

and South Atlantic regions.

Strong expectations for bid price increases register across the

nation. The Mountain region recorded the highest net for expecta-

tions, but even the low end, Mid-Atlantic, indicates solid move-

ment on bid prices.

Fleets

Transportation

Water

Home Building

Nonresidential

Material Price Expectations(percentage expecting increase minus decrease, net)

86%

83%

83%

81%

89%


Fleets

Transportation

Water

Home Building

Nonresidential

Bid Price Expectations(percentage expecting increase minus decrease, net)

73%

66%

76%

80%

83%


2019 Material Prices(percentage expecting increase minus decrease, net)


DEMD

DC

GA

SC

NC

VAWV

FL

AZ

NV

ID

CO

MT

NM

UT

WY

ALMS

TN

KY

TX LA

AROK

NH

VT

MA

RICT

ME

NJPA

NY

IA

MO

MN

KS

NE

ND

SD

CA

OR

WA

AK

HI

IL

WI

OHIN

MI

86%

87%

88%

83%85%

85%86%90%

85%

2019 Bid Prices(percentage expecting increase minus decrease, net)


DEMD

DC

GA

SC

NC

VAWV

FL

AZ

NV

ID

CO

MT

NM

UT

WY

ALMS

TN

KY

TX LA

AROK

NH

VT

MA

RICT

ME

NJPA

NY

IA

MO

MN

KS

NE

ND

SD

CA

OR

WA

AK

HI

IL

WI

OHIN

MI

78%

72%

73%

79%79%

75%80%84%

75%



Business continues to boom for organizations that use con-struction equipment fleets,

according to those who manage these assets. With 2016—the hotly contested-election year—as the exception, equip-ment managers have reported “very good” business for three of the past four years. Last year was also the first year in several where actual business performance met expectations from the previous year.

About the same time managers were rating 2018 as a business year, the Associated General Contractors of America reported that construction spending for the first nine months of the year was up 5.5 percent. Growth is broad and national, according to AGC’s chief economist, Ken Simonson: “Con-struction spending has increased among nearly every project type and geographic area [in 2018],” he said.

Equipment managers expect 2019 to bring more of the same, projecting it to be a “very good” business year. Contract volume bears that out. In 2017, volume resoundingly beat expec-tations, which encouraged perhaps a bit too much enthusiasm for 2018. Last year, although recording a strong gain, volume fell short of what equipment managers had expected.

The net for contract volume in 2018 (measured by the percentage reporting increases minus the percentage report-ing decreases) was 35.9 percent, matching the number recorded in 2017. The forecast for 2018 was higher, a net

of 52.9, but managers are not deterred in their optimism: The net for 2019 con-tract volume is 54.4 percent, with 62.4 percent expecting increases and 8 per-cent expecting declines.

About three-quarters of fleet manag-ers expect bid prices to increase next year, with about one-quarter expecting them to stay the same. This is a slightly less aggressive outlook than recorded in 2018, which was the highest in sev-eral years. Expectations for last year

called for increased bid prices with a net of 86.7 percent; for 2019, the net is 73.1 percent.

Looming over all 2019 predictions are the potential dampening effects of issues such as tariffs, equipment price increases, and construction labor shortages. Fleet asset managers are planning accordingly: Fleet-expansion rates and replacement rates continue strong, maintaining trends begun sev-eral years ago.


On the Docket: Fleets Expand, Replace

Equipment managers registered a fourth consecutive year of strong fl eet expansion, with a

net of 30 percent. More growth is anticipated. The fl eet-replacement rate also stayed high

in 2018, but the forecast for 2019 would set a record if managers follow through.

CONSTRUCTION EQUIPMENT FLEETS


,07 ,08 ,09 ,10 ,11 ,12 ,13 ‘14 ’15 ’16 ’17 ’18 ‘19(f)

Fleet Management Trends% of Fleet Expanding (Net)Average Fleet Replacement Rate

35%

30%

25%

20%

15%

10%

5%

0%

-5%

-10%

-15%

ExpansionsRate



Fleet TrendsWith contract-volume expectations

continuing strong, equipment manag-ers must ensure that the equipment needed to accomplish the work will be available. Acquisition strategies and replacement planning play key roles, as equipment rates contribute a major

portion of bid pricing. Fleet expansion rates have slowly

rebounded from the depths of 2010 and returned to pre-Recession levels in 2015. Since then, managers have strung together four consecutive years of net numbers in near 30 percent. In 2018, 36.8 percent of respondents said they would be expanding their fleet

sizes, and 6.6 percent decreasing, for a net of 30.2 percent. Expectations for this year are a net of 38.4 percent, with 43.2 percent expecting to increase fleet size minus 4.8 percent decreasing.

Machine replacement rates are another indicator for fleet managers. For the fourth consecutive year, that rate has been higher than 9 percent,

Last year was an excellent year for businesses using construction equipment fl eets, falling

just short of high expectations. Respondents forecast that 2019 will be a strong year, in the

“excellent” range.

CONSTRUCTION EQUIPMENT FLEETS

Fleet Health(% responding)

Source: Construction Equipment/Case Construction EquipmentAnnual Report & Forecast Survey

Excellent

Very goodGood

Fair0.8% Poor

8.5%

36.0%

44.6%

10.1%

Fleet health remains strong, with 44

percent of managers labeling their fl eets in

“excellent” or “very good” health, a

number identical to 2017. The percentage of

fl eets in “fair” or “poor” condition also

stayed the same, for the third consecutive

year, at 11 percent responding.

Source: Construction Equipment/Case Construction Equipment Annual Report & Forecast Survey *No data

Poor

Off

Avg

.G

ood

V. G

ood

Exce

llent

Business Year Ratings(actual vs forecast, fleets)

ActualForecast

2011 2012 2013 2014 2015 2016 2017

*2018

*2019

Machine data offers fleet manag-ers a myriad of insights into lo-cation, performance, and reli-

ability. But sifting through the data and knowing which to act upon—or when—presents a formidable barrier to execution.

Recently, equipment manufacturers have stepped up investment in machine-moni-toring programs designed to provide equipment managers with the most ac-tionable data. Along the way, many equip-ment distributors have recognized the im-portance of their link in the information chain. Some have invested both technol-ogy and labor in analytics that enable them to use machine data to keep their customers better informed.

The relationship between dealer and equipment manager is the linchpin to how well machine data can inform mainte-nance and productivity decisions within a fleet. How this relationship develops will depend on dealer expertise, performance, and pricing as much as it will depend on equipment managers’ need for the ser-vices that will come.

We asked respondents to rate their pri-mary equipment dealer on two areas of technology: understanding and ability to partner.

According to the responses, dealers un-derstand the technology they are selling on their machines. Twelve percent of re-spondents rated their dealer as having

“excellent” understanding, and 80 percent rated it “very good” or “good.”

These results bode well for the develop-ment of a mutually beneficial relationship. Dealers have the opportunity to use ma-chine data to better provide after-sale sup-port and service; fleet managers can ben-efit from more accurate maintenance planning and even predictive diagnostics.

Although dealers were rated well in their understanding of the technology, the ratings were a bit lower for their ability to partner on service. Twelve percent of respondents said their primary dealer has only a “fair” or “poor” ability to partner. On the other end of the spectrum, 46 percent rated their deal-er’s ability as “excellent” or “very good.”

Fleets Rate Their Dealers



with managers reporting 9.7 percent in 2018. This was below the expected replacement rate—10.7 percent—but did not prevent managers from fore-casting an even higher rate for 2019: 13.8 percent. If met, this rate would be the highest recorded since the 1990s.

These metrics—expansion and replacement—provide insight into a fleet’s capability to stay healthy. Since 2012, the percentage of equipment managers labeling their fleets in “excellent” or “very good” health has steadily risen from 33 percent. In 2018, about 45 percent of respondents reported “excellent” or “very good” fleet health, up from 2017. The percent-age of fleets in the unhealthy spec-trum, “fair” or “poor,” remained statis-tically the same, dropping slightly below 11 percent in 2018.

Pressure on equipment prices, which this year includes tariffs as well as increases designed to offset emissions and technology enhancements, has forced managers to alter their acquisi-tion strategies. About one-quarter of respondents said increased acquisition cost will have no effect on their plans for 2019, and another 17 percent do not know how prices will affect plans. About 16 percent will increase their new-equipment budgets to

accommodate price increases, and another 16 percent said they will buy fewer machines. Twelve percent will buy used rather than new, and 12 per-cent will rent rather than buy new. (Respondents were limited to one choice in responding to this question.)

Price increases may be driving more fleets to finance, too. The percentage who use outright purchasing as a strategy dropped from 53 percent to 42.4 percent; the percentage who pur-chase by financing rose to 45 percent from 40.6 percent. Rental, rental/pur-chase, leasing, and lease/purchase remain as viable strategies used by equipment managers.

Trends in short-term rental—mea-sured in total rental machine hours—remain consistent with past years. About three in 10 will increase their use of short-term rental, and about half will keep it the same as last year.

Managers are more comfortable with workforce levels in 2018 than they have been in previous years. Half of respondents said overall levels stayed the same as in 2017. On the service and maintenance side, two-thirds of respondents said they did not change the number of employees. One-quarter increased their maintenance force, 8 percent decreased.

A c q u i s i t i o n S t r a t e g i e s

Purchase outright 42.4%Purchase by financing 45.0%Rental/purchase 16.0%Short-term rental 14.7%Lease/purchase 9.7%Lease 8.0%


E q u i p m e n t W o r k f o r c e

Increased 37.0%Decreased 11.7%Stayed the same 53.1%


Purchasing by fi nancing has steadily grown

as an acquisition strategy used by respon-

dents. In 2016, 34 percent fi nanced

purchases, and this year 45 percent said

they use fi nancing. Outright purchase has

dropped from 55 percent in 2016 to 42.4

percent last year. Rental/purchase also

dropped over the three years.

About half of respondents kept their

workforces stable in 2018, after a hiring

bump in 2017. One in three increased their

workforce last year, but only 12 percent

said they reduced their workforce, the

lowest percentage in several years.

Machine data plays an important

role in maintenance and service

planning, and less than half of fl eet

managers responding rated their

dealers as “excellent” or “very good”

at partnering with them on service

and support. Twelve percent rated

their dealers either “fair” or “poor.”

Rate Dealer Understandingof Machine Technology(% responding)


Excellent

Very goodGood

Fair0.4% Poor

11.7%

44.1%

36.0%

7.7%

More than half of fl eet managers

responding rate their dealers as

either “excellent” or “very good” in

their understanding of the technol-

ogy contained in the machines that

they sell. Technology is defi ned as

everything from machine data to

sensors and engine controls.

Rate Dealer Ability toPartner on Service(% responding)


Excellent

Very goodGood

Fair2.3% Poor

11.2%

34.9%

41.8%

9.6%

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The talk continues to be about the skilled labor shortage in the road and bridge construc-

tion market. The fear of steel prices crippling productivity is only creating a slight pause, and after checking the damage it is business as usual.

Of course, throwing additional weight on the labor shortage is the fact that business continues to be good; work is flowing in most states. In the latest Roads & Bridges State of the Industry survey, 38 percent said busi-ness in 2018 was “very good,” and another 33 percent say it is “good.” It looks even better in 2019, as 47 percent expect a “very good” campaign and 28 percent predicting it to be “good.” The American Road and Transportation Builders Association forecasted almost $193 billion in road and bridge con-struction activity in 2018, and is pre-dicting a slight bump in 2019 to $199.2 billion.

“I would say business is good, but it’s not booming,” Brian Deery from the Associated General Contractors of America, says. “I think it is a relatively flat market, but having the FAST Act in place really means a lot in terms of states are putting out bigger projects, more long-term projects whereas when we start getting into the reau-thorization cycle states really start cut-ting back and putting out a lot of pav-ing and smaller projects.”

The reauthorization cycle is about to start again. FAST Act runs into 2020, a time when the Highway Trust Fund could be teetering on a danger-ous cliff. President Trump cam-paigned on doing more for

infrastructure, but a massive tax cut was the focus of the last year, and the cross hairs were turned on China behind a number of tariffs, one of them dealing with steel. On the national scale, the steel tax has ramped up production at steel mills, but U.S. producers have used the tariff as an opportunity to raise the price of the material. Almost 40 percent of respondents said the price of steel has gone up 6 percent to 10 percent in their area, and 56 percent said the rea-son behind the spike is a combination of things, including the steel tariff.

Deery said most of contractors had their prices in place before the steel tariff came into play, but there is some uncertainty heading into 2019.

“They are expecting prices to go up as we move forward,” he said.

Max Kuney, president of Max J. Kuney Co., which specializes in bridge, highway, and transit work in the Pacific Northwest, acknowledged that accelerating inflation in construction is going to be an issue, among other things.

“We certainly saw some major labor increases in the latest round of union negotiators in Seattle,” he says. “The amount of money available for con-struction did not go up, so there is going to be some effect. There might be a project or two that falls out.”

The Puget Sound region is booming with construction, and the Max J. Kuney Co. is enjoying the ride. How-ever, there is a shift in how the money is being spent on the roads and bridges side following an increase in the state gas tax in 2015. Kuney recalled attend-

ing an Associated General Contrac-tors of America meeting two years ago where the Washington State Department of Transportation made a presentation. A couple of pie charts told the story—about 25 per-cent of new projects from the tax increase would go towards design-build projects, but 75 percent of the total funding would be poured into those types of jobs. Megaproject activity also is on the rise, and the focus of Max J. Kuney Co., a mid-sized regional contractor, has been on joint ventures.

Max J. Kuney recently completed a four-year job on I-5 that involved the construction of two bridges over the expressway in Tacoma, Wash.

“There were a lot of traffic phases, a lot of night work and it was

Tariffs have certainly put pressure on steel prices,

with more than three-fourth of respondents citing

them, but they dismiss the long-term effect.

TRANSPORTATION

By BILL WILSON, Editorial Director, Roads & Bridges

Still Waiting for the Boom

Causes of Steel Price Increase(% responding)

Source: Roads & Bridges magazine

Increasing Tariff

Material Shortage

Combination of things, not including an increasing tariff

Combination of things, including an increasing tariff

23%

10%

56%

11%



challenging because there are frequent accidents there that have nothing to do with construction and the freeway is locked up for hours,” said Kuney.

Construction of the Pacific Avenue bridge was especially complex due to a steep slope, and Kuney had to order some additional parts for their bridge paver in order to get the legs of the machine adjusted at the right level and make sure it could keep a level pour while it was climbing.

Work is currently being done on a light rail project for Sound Transit that includes a 1,275-ft-long bridge over a wetland area. Installing the drilled shafts right up against the environmentally sensitive area has been a challenge.

“When you start doing that right next to a wetland area there are all kinds of opportunities for things to go wrong,” said Kuney.

Kuney took its work bridge sections used to cross rivers and stacked them three, four, and even five high to create a solid platform for equipment during drilled shaft activities for the light rail bridge. Precast girders are in place and in mid-November work was being done on the diaphragms.

The Missouri Department of Trans-portation (MoDOT) cannot get a hand-out from taxpayers. In November, a measure on the ballot that would increase taxes was soundly defeated. MoDOT has been trying to generate additional funding for decades now, with each effort failing.

Business has still been strong for Herzog Contracting, which specializes in asphalt paving and, on a national level, rail and transit construction.

“MoDOT has been spinning down some reserves to have a respectable program and to get matching federal funds, so it has been OK, but they were counting on the gas tax to pass and provide a little wiggle room,” Kyle Phillips, VP of civil construction, says.

Steady work also appears to be the theme for Herzog in 2019, even though the commercial paving market has dried up in recent years. At the very worst Phillips sees a flat year over the next 12 months. “We have some jobs on the books that are good jobs,” he said. That doesn’t include a couple of major highway construction jobs in Missouri and Kansas that Herzog was bidding on in mid-November.

Herzog was wrapping up a $5 mil-lion job on I-35 in Harrison County, Mo., that involved an overlay and the replacement of rumble strips. Accord-ing to Phillips, rumble strips have been deteriorating rapidly in north-west Missouri, and the job involved milling out the old strips and fixing them prior to laying down an overlay.

Earlier in the construction season work also was done on State Highway 36 close to Cameron, Mo. There crews executed a curve realignment and placed asphalt on 14 miles worth of a four-lane divided highway.

Steel prices do not come into play for Herzog, but a recent drop in crude oil may relax the price of liquid asphalt

for the contractor. The cost of aggre-gates is on the rise.

Since he was elected, President Trump has been talking about a $1.5 tril-lion infrastructure bill that would include funding for roads and bridges. However, tax cuts came first and there simply was not enough time to pass anything more leading up to the mid-term elections. The Trump administra-tion has indicated that the infrastructure bill is again top of mind, but the Repub-lican party lost control of the House of Representatives. With the Democrats calling the shots, the focus could now turn to impeaching the president rather than helping the economy. Some also are skeptical that the Dems would be interested in handing President Trump a major victory like the passage of one of the largest infrastructure bills in history.

“Can they work in a bipartisan man-ner to fund it? I think they can write a highway bill today that everyone would love, but how do you pay for it? That is going to be the challenge,” said Kuney.

States, however, continue to make gains on the funding gap. On Nov. 6, voters in 31 states approved 79 per-cent of 346 state and local transporta-tion ballot measures. The one everyone was watching was Proposition 6 in Cal-ifornia. If approved, Caltrans would lose $5 billion in transportation fund-ing annually. That measure was defeated by a 55 percent-45 percent count. Colorado, however, suffered a setback, as two measures to increase road, bridge and transit investment were soundly defeated. Proposition 109, a measure to provide one-time funding with a $3.5 billion bond, was rejected, as was Proposition 110, which would have increased the state sales tax by 0.62 percent for 20 years and provided an initial jumpstart with a $6 billion bond. The Colorado Department of Transportation estimates it is facing a $25 billion transportation funding gap over the next 25 years.

Funding for 2019 will stay the same for half

of respondents, but the 37 percent expect

funding to increase this year.

2019 Funding Trends(% responding)

Source: Roads & Bridges magazine

Increase

DecreaseStay the Same

37%

12%

51% $



Last year, President Donald J. Trump’s infrastructure plan was yet to be realized. This year, there

was movement. In October, Trump signed the America’s Water Infrastruc-ture act, which calls up on the U.S. Army Corps of Engineers to develop five-year plans through 2024 for water projects. The bill also provides $3.6 bil-lion for the Water Infrastructure Devel-opment Act, which can be used to insti-tute workforce development programs.

According to the Water & Wastes Digest survey, half of respondents said new construction was not on the table, but nearly 70 percent said upgrades are planned for the next 36 months. This simply could be ongoing mainte-nance planned a decade ago, but the volume of upgrading suggests that municipalities see a need for new equipment but not new facilities.

The approximate annual budget for upgrades highlights another take on the matter of upgrades or new con-struction. Respondents fit into a

budget category of $1 million or more with 47 percent, but the middle range of $100,000 to $499,000 makes up another 22 percent of respondents. Despite that budget availability, 48 per-cent of respondents also note that the budget has generally remained the same from the previous year.

With a review of the survey con-ducted last year in which 50 percent of respondents said revenue increased, this year’s study suggests there has been a plateau in revenue relative to the previous year. Looking at the politi-cal climate around infrastructure fund-ing and how little was known until the last quarter of the year, this makes sense. Uncertainty abounded for most of the year, and the steel and alumi-num tariffs added pressures on manu-facturers for which they had not been entirely prepared. And for those importing from China, an increase on tariffs will start Jan. 1. Despite that, some manufacturers have seen strong years, with several in the industry

hitting record sales, and those manu-facturers are anticipating that trend will continue into 2019.

Lastly, the items that respondents deemed most important for the com-ing year are state and federal regula-tions and compliance issues, funding, maintenance and upgrades, workforce development and preliminary waste-water treatment such as headworks and screens.

Although segments of the municipal market have struggled to invest in infrastructure, spending and budgeting for necessary projects has not faded entirely. John Masters, Danfoss vice president of sales - water, said much of that spending has been in energy effi-ciencies, particularly as it relates the purchase of drives. By investing in improved efficiencies, municipalities are thinking about long-term payoffs.

“The overall construction market for water has continued to grow this year, too,” Masters said. “Of course we had the issues with the hurricanes and so forth, and that unfortunately—as unfor-tunate as that is—has contributed to some additional opportunities to sup-port the rebuilding of that infrastructure.”

Paul Turgeon, WWD editorial board member and CEO of Anue Water Tech-nologies, said overall, public utilities are finding it difficult to reinvest but that private sector investment is start-ing to make an appearance.

“We’re beginning to see some pri-vate sector interest in filling that gap, and at the same time the billing and use is growing with growth in the overall market and need for water, but the infrastructure is not so that’s where private industry—private investment at least—is saying, ‘Hey, there’s a gap

About one in fi ve respondents considered 2018 to be a mediocre year, and that percentage

drops slightly for 2019.

WATER INFRASTRUCTURE

By BOB CROSSEN, Managing Editor, Water & Wastes Digest

Federal Funds Dry Up

Business Rating & Forecast(% responding)

Source: Water & Wastes Digest magazine

Good, Very Good, Excellent

Mediocre

2% Poor

77%

21%

Mediocre

2% Poor

81%

17%

2018 2019



Top Factors for 2019

1 State regulations/compliance

2 Federal regulations

3 Funding

4 Maintenance & upgrades

5 Asset management

6 Alternative energy/energy

efficiency

7 Industrial water treatment

8 New technology

here we could potentially close and fill in,” Turgeon said. “We’ve seen a couple of instances with that practically with Anue Water and we’ve heard from other players in the market that that’s an impactful trend.”

Additionally, hurricanes and other disasters in the past year have contrib-uted to necessary spending from municipalities regionally, and Masters said 2019 with bring an increased focus on state-level funding from revolving loans because of the passing of AWIA. For projects that have been on the backburner, Masters said the state revolving loan funds may be the catalyst to get projects completed.

Ryan Godfrey, U.S. Water VP opera-tions, said getting state legislatures engaged will be an important aspect of securing funding for projects because of the projected increase in state revolving loans.

“We can very safely expect that it is going to be very state level focused,” Godfrey said. “The federal government having little involvement going forward is pretty clear. I have seen extra conver-sation and discussion happening in a number of state legislatures talking about what they can do from a funding perspective. If we start to get state leg-islatures more engaged, these issues these municipalities are struggling with, we might start to see some better options coming out at the state level.”

Godfrey and Masters said that pub-lic-private partnerships are effective, but only when municipalities or com-panies are large enough. Masters said that companies like Veolia and Suez that provide the operation ser-vices for large facilities have been effective, but the smaller utilities have not been as effective.

TariffsOne of the greatest impacts on the

industry this year has been the intro-duction and implementation of steel and aluminum tariffs. There have been several separate determinations throughout the year. A 25 percent tar-iff on steel and a 10 percent tariff on aluminum were both instituted in most countries in March and those tariffs were extended to the European Union, Canada and Mexico in June. Then in July, a 25 percent tariff on 800 goods from China was instituted, which also impacted manufacturers.

The implications for this include price increases in equipment, disruption to delivery of equipment and delays in manufacturing. John Ballun, president of Val-matic, said the intent of the tariffs did not match with the end goal.

“While we support the intentions of the 301 tariffs, their sudden and unpre-dictable end make for some difficult decisions, both logistically and strate-gically,” Ballun said. “It may produce

reshoring, but that is a difficult chal-lenge given the temporary nature of the tariffs. Also, the domestic foundries are swamped right now and can’t take on more work.”

The result of the tariffs, he said, was an increase in price on all affected products, meaning municipalities—and ultimately taxpayers—are absorb-ing the cost of the tariffs. He said this was similar for the tariffs instituted on Chinese imports.

“Our China sourced parts saw a 25% cost increase,” Ballun said. “The tooling associated with these parts represents several million dollars, which is difficult to transfer back to the US or to another country. We have decades-long part-nerships with factories in China.”

Ryan Godfrey said the struggle for municipalities to find funding is com-pounded by the tariffs.

“We know the quantity [of needed work] out there and it’s an ongoing struggle [to fund it]... That struggle is being compounded by some of the inflationary pressures out there in the marketplace. The tariffs and that are having a trickle down effect and will continue to have a trickle down effect,” Godfrey said.

In January, Chinese tariffs will increase from 10 percent to 25 percent. It is not clear if more are on the hori-zon or if any instituted in the past year will be reviewed or changed in 2019.

Respondents ranked top factors for this

year, and regulations were at the top of

the list.

Two-year plans do not include new construction for half of respondents, and 35 percent do

not expect to do upgrades in that time frame.

Facility Construction & Upgrades Plans(% responding)

Source: Water & Wastes Digest magazine

Water & Wastewater New Construction Water & Wastewater Upgrades

Yes, within24-36 months

Undecided

7%

11%

31%

51%

Yes, within24 months

NoYes, within

24-36 months

Undecided

12%

10%

43%

35%

Yes, within24 months

No

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2019 Outlook

Land Purchase: Fundamentals for housing

demand still rule as low inventory, the

increasing numbers of household forma-

tions and potential young buyers, and

income growth are factors for a positive

sentiment regarding the industry.

Staff Growth: Most of the respondents

planning to buy land this year will secure

fi nancing from friends and family, private

investors, and bank loans.

A frequent question builders are asked or that they ask colleagues, analysts, and oth-

ers presumably in the know, is what inning are we in? Home building is a cyclical business and after a five-year run, many inevitably wonder when will the dark side of the moon appear and if it does, how bad will it be? Third quarter 2018 starts for single-family homes were off from the previous quarter and the year-ago period, per the U.S. Commerce Department; Sep-tember sales were sluggish, and anec-dotally, builders report that the fourth quarter was more of the same.

Optimism still reigns, with 56 per-cent of builders in Professional Build-er’s 2019 Market Forecast survey expecting to sell more houses this

year, and 69 percent anticipating reve-nue to increase.

Despite the barriers presented by expensive land, fees, and the rising cost for materials and labor, building product for first-time home buyers again ranked among the top market opportunities behind custom home and move-up production-built home buyers—the main drivers for home building since the recovery started. Almost 70 percent of respondents rated last year as “good” or “very good,” and 14.4 percent graded 2018 as “excellent.” More than 75 percent anticipate 2019 to be “good” or “very good,” and 14 percent expect next year will be excellent for their companies. For more survey results, see the charts that follow.

HOME BUILDERS

By MIKE BEIRNE, Senior Editor, Professional Builder

It’s A Cyclical Game

Finding/entitling land

Marketing: finding qualified buyers and prospects

Mortgage banking: getting customers qualified

Competition from resale homes

Top 10 Challenges(% responding)

81.2%

58.9%

21.4%

20.1%

19.7%

15.4%

10.7%

10.3%

9.4%

9.4%

Source: Professional Builder magazine

Higher labor/material costs

Finding qualified employees/contractors

Government regulations

Competition from other builders

Overall economy

Local permit fees and taxes

A builder in south suburban Chicago noted that a week after tariffs were slapped on

Canadian lumber imports, the framing cost for a 3,300 square-foot fl oor plan in his

subdivision jumped by $10,000. The rising cost of material and labor as well as government

regulations and the overall economy again ranked among the top fi ve challenges. This

survey was distributed before the midterm election, and several builders noted concern

about which party will retain control of Congress and whether post-election government

policies will support economic growth.

Land Purchase(% responding)


Yes

No

Not sure

60.3%24.6%

15.1%

Staff Growth(% responding)


YesNo

Not sure

0.9% I’m planning to reduce staff

38.1%

33.6%

27.4%



Top 10 Opportunities(% responding)

37.3%

30.9%

27.9%

24.2%

22.8%

21.2%

17.4%

14.4%

11.0%

8.1%


Move-up buyers

Increasing profit margins

Energy-efficient/high performance homes

Smaller homes

Move-down buyers

Recession-proof upscale clients

Diversification

Finding/entitling land

Marketing: finding qualified buyers and prospects

Competition from resale homes

Perhaps a disconnect, since one-quarter of builders indicated that entry-level production-

built homes will be their strongest activity this year, just 5.4 percent noted those buyers

will be their top opportunity for growth.

2019 Output Projections(% responding)


17.5%

23.3%

19.7%

12.1%

10.3%

7.6%

More than 20 additional homes

11 to 20 additional homes



4.0% More than 20 fewer homes

1.9% 11 to 20 fewer homes

3.6% 4 to 10 fewer homes

1 to 3 fewer homes

Same number of homes

More than two-thirds of survey respondents have rosy revenue expectations for 2019 in

spite of rising costs from material and labor.

2019 Revenue Forecast(% responding)


18.5%

21.1%

20.7%16.7%

13.2%

Up more than 10 percent

Up 7-10 percent

Up 3-7 percent

Up 1-3 percent

2.6% Down more than 10 percent

0.9% Down 7-10 percent



Same as this year

For the sixth consecutive year the majority of builders expect to sell more houses this

year compared with 2018.

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Strongest 10 Home-Building Activities for 2019(% responding)

As apartment and condominium supply

catches up with demand, multifamily drops

down after cracking into the top four last

year for the fi rst time since 2013. Active

adult buyers have attracted a lot of

attention from master plan community

(MPC) developers because of the sheer

numbers of Baby Boomers retiring or

becoming empty nesters and the equity

they have in their current home, which they

can sell to pay for new construction.

However in this survey, which may be

skewed as just 12 percent of participants

hailed from the Pacifi c region where MPC

development is strong, more builders

identifi ed building for fi rst-time buyers as

their go-to buyer.

Custom homes 37.9%

Production homes, move-up buyer 34.2%

Production homes, first-time buyer 25.3%

Production homes, move-down buyer 21.1%

55+ 14.8%

Remodeling, whole house 14.8%

Production homes, luxury 11.8%

Multifamily, for sale 8.4%

Multifamily, rental 7.2%

Remodeling, replacement work 6.8%



AEC professionals expect increases in bid

prices for 2019. Only 2 percent of respon-

dents expect prices to go down.

Tariffs on steel are contributing to expecta-

tions that material prices will increase in

2019, with nearly 90 percent citing boosts

in prices.

Nine months into the Trump Administration’s international trade war, the nonresidential

construction industry stands nearly unfazed by the threat of rising ma-terials prices and a potential market slowdown. Prices for aluminum- and steel-based materials have soared in recent months (steel mill products are up 18.1 percent from a year ago, for example), yet the construction sector continues to charge ahead at a his-toric pace.

Nonresidential construction spend-ing reached a record-high $767.1 bil-lion in August 2018 (up 8.9 percent over 2017), bolstered by a healthy backlog of work. Even with the impacts from the tariffs factored in, construction industry economists remain largely upbeat with their fore-casts for 2019. All but one sector (reli-gious facilities) are expected to

expand next year, according to the lat-est AIA Consensus Construction Fore-cast, with education (5.2 percent), industrial (4.9 percent), healthcare (4.4 percent), and office (4.1 percent) lead-ing the way.

Yet despite the positive indicators for this market, AEC professionals are not exactly brimming with confidence over the growth potential for their firms heading into 2019. In a Building Design+Construction survey, only 56 percent of industry professionals expect higher revenue for their firms in 2018 compared to last year, and 13.4 percent are forecasting a decrease in revenue. And their fore-cast for 2019 isn’t much rosier: 54.7 percent expect revenue to increase, 8.7 percent call for a drop, and 36.6 percent predict flat revenue next year.

This is a markedly different senti-ment than last year’s respondents,

About half of respondents expect this year to garner an increase in revenue compared to 2018.

This is down only slightly from the percentage who reported increases last year over 2017.

NONRESIDENTIAL

By DAVID BARISTA, Editorial Director, Building Design+Construction

Unfazed in Pace

2018 Revenue Results and 2019 Financial Outlook Source: Building Design+Construction magazine

How has your firm's revenue changed in 2018 compared to 2017?

How do you expect your firm's revenue to change in 2019, compared to 2018?

Stay the same

30.6%

56.0%

13.4%

Increase

Decrease

Stay the same

36.6%

54.7%

8.7%

Increase

Decrease

2019 Bid Prices Expectations(% responding)

Source: Building Design+Construction magazine

Will go up

Will stay the same

1.9% Will go down

85.2%

12.9%

BIDBID

BID

2019 Material Prices Expectations(% responding)


Will go up

Will staythe same

1.0% Willgo down

89.6%

9.4%



who were much more rosy with their forecasts for the upcoming year: 62.0 percent predicted revenue to rise and only 6.1 percent called for it to drop.

When asked about their top con-cerns for 2019, the largest number of respondents cited “general economic conditions” (52.7 percent) as a key issue, followed by “competition from other firms” (41.0 percent) and “price increases in materials and services” (39.0 percent). In fact, nearly 90 per-cent of respondents anticipate con-struction materials prices to rise in 2019. That’s up from 86 percent in last year’s survey.

To help keep their project pipelines full through 2019, AEC firms are focus-ing on a number of business develop-ment strategies. Selective hires (44.1 percent) and marketing/public rela-tions efforts (42.2 percent) top the list, followed by investments in technology (39.0 percent), staff training/education (35.9 percent), and new services/busi-ness opportunities (29.2 percent).

Healthcare facilities and multifamily housing head the list of the hottest sectors heading into 2019. More than half (52.5 percent) indicated that the prospects for healthcare/hospital work were either “excellent” or “good”; 52.4 percent said the same for multi-family housing work. Other strong sectors: senior/assisted living facilities (51.9 percent), office interiors/fitouts (46.9 percent), industrial/warehouse buildings (42.7 percent), hotel/hospi-tality developments (39.7 percent), university facilities (38.2 percent), government/military buildings (37.5 percent), and office buildings (37.4).


Top 10 Concerns for 2019(% responding)

52.7%

41.0%

39.0%

30.2%

19.0%

18.7%

18.7%

16.2%

11.4%

9.8%

General economic conditions

Competition from other firms

Price increases: materials, services

Managing cash flow

Business impact from Presidential election

Government regulations/restrictions

Insufficient capital funding for projects

Softness in fees/bids

Avoiding layoffs

Avoiding benefit reductions

The general economy weighs heavy for half of respondents. Despite these concerns, the

overall outlook remains upbeat, refl ected in the percentage of respondents concerned

about competition from other fi rms. Adding to the economic worries are the ongoing

pressure on prices of materials due to steel tariffs. Insuffi cient capital funding concerns

about one in fi ve respondents, as does the impact of government regulations and

restrictions.

Respondents cited several strategies for keeping work in the pipeline this year, with

selective hiring and increased marketing and public relations named most frequently.

Other areas of focus include investment in technology, acquisition of services, and

company merger or acquisition.


Top Business Development Strategies for 2019(% responding)

44.1%

42.2%

39.0%

35.9%

29.2%

14.9%

7.6%

Make selective hires to increase competitiveness

Increase marketing/public relations efforts

Increase investment in technology

Increase staff training or education to enhance competitiveness

Create new service or business opportunity

Acquire new service or business opportunity

Acquire/merge with another firm

BUILDING

COMMUNITY.

For over 175 years, we have been constructing the world around us. By pioneering earthmoving equipment like the

modern backhoe and the 4-in-1 bucket, generations have built roads that connect people and commerce, houses that

bring families together, and towns that folks call home. Today, we take pride in serving customers with practical

innovations like #ProjectMinotaur and ProCare, and committing wholeheartedly to our purpose: building community.

This is what we live for. This is who we are.

©2019 CNH Industrial America LLC. All rights reserved. CASE is a trademark registered in the United States and many other countries, owned by or licensed to CNH Industrial N.V., its subsidiaries or affi liates.

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