One of the biggest markets for trucking is construction. Last year, U.S. manufacturers shipped a total of $500 billion of construction materials, supplies and machinery, nearly all of which made its way to job sites on trucks.
In addition, construction workers and owners took home another $500 billion in earnings, much of which they spent on goods brought by truck. And once a construction job was completed, the houses, stores, offices, hospitals and other new structures all had to be furnished and stocked by truck deliveries as well.
With construction contributing so much to trucking revenues, it's worth checking up on the current state and outlook for construction. The industry finished the first quarter of 2005 in record territory. The value of construction put in place in March set a record for the 14th straight month at a seasonally adjusted annual rate of $1.05 trillion.
Despite predictions that housing would finally stumble in 2005, both multi-family and single-family new construction soared in the first quarter by more than 13% compared to the first three months of 2004. Private nonresidential construction climbed 7%, led by a whopping 31% increase in factory construction, 19% for multi-retail construction such as “big-box” stores and shopping centers, 16% for lodging (hotels and resorts), and 11% for warehouses. Public construction rose 3%, paced by a 10% surge in highways and streets.
There are several favorable omens for the near term. The industry has added jobs at double the rate of the economy as a whole. Manufacturers' orders for construction machinery swelled nearly 10% in the first quarter compared to the same period a year ago. Building permits and the value of new construction contracts both outran year-ago levels.
For the remainder of 2005 and into 2006, it seems likely that private nonresidential construction will maintain momentum. Higher factory output, growing imports, and bottlenecks in ports and railyards are all adding to demand for greater inventories — and new warehouses to hold them. The fall in the dollar is encouraging foreign vacationers and business people to fill U.S. hotels and resorts, which are also expanding to welcome the upturn in domestic business travel. Ever-rising healthcare spending translates into new hospital, clinic, and laboratory construction. Even office construction is reviving in certain markets.
Public construction should pick up as the year progresses. The long-overdue highway bill will gradually increase money for roads. School districts dependent on property taxes have benefited from the run-up in house values that will enable them to build and renovate schools. And legislatures have restored some other construction spending that was trimmed when revenues flattened or fell in 2001-04.
It still appears likely that single-family home building will taper off as rising adjustable-rate mortgage interest and rising house prices push more would-be buyers out of the market. But multi-family construction should hold up better, thanks to strong demand for condos and slowly falling rental vacancy rates.
The bottom line: Demand should remain robust for construction trucks and for hauling materials for nonresidential and multi-family construction. The outlook is shakier, but not grim, for single-family construction and for the businesses that serve new homeowners.
To follow construction more closely, email me at [email protected] to receive materials I produce as chief economist for Associated General Contractors of America.