NATIONAL—This week, the Associated Builders and Contractors of America (ABC), the Equipment Leasing and Finance Foundation (the Foundation), and NTEA, the association for the work truck industry, released three economic outlooks for the United States construction industry in 2021. The forecasts reported mixed predictions about the year ahead. Here's what you need to know:
ABC Chief Economist Anirban Basu forecasts a recession threat for the construction sector next year, but called out some potential economic bright spots, such as e-commerce and Class B office space. Basu referenced another surge in case numbers pair with a lack of new stimuli from Congress, as well as supply difficulties, the combination of which will result in a "W" shaped recovery in 2021.
“Another recession may be on the horizon,” Basu said. “Critically, one could occur even if a further stimulus is passed. Stimulus supports the demand side of the economy, primarily. Another shutdown would compromise the economy’s ability to produce (supply side), presumably leading to another round of mass layoffs, job loss, crumbling consumer confidence, corporate bankruptcies and other negative outcomes. If the first recession is any indication, the next one will be sharp and short. Regardless, that would delay complete recovery, which is the ultimate aspiration.”
These factors have pushed nonresidential construction to the brink. Commercial real estate, Basu determines, is particularly on the outs because the majority of the American workforce has abandoned Class A office spaces for their homes.
In fact, the negation of commutes, childcare concerns and office distractions have meant that 37% of workers now complete their jobs entirely from home.
“Survey data indicates that lending to commercial real estate ventures has tightened, while state and local government finances have been compromised, especially in states that depend upon substantial tourism activity,” Basu said. “This only adds to the simmering uncertainty that lingers, resulting in less risk-taking among developers and others who procure nonresidential construction services. Nonresidential construction employment is down almost 6% on a year-ago basis as winter approaches.”
Basu also notes that backlog data has been receding, with some contractors indicating that they will exhaust current backlog by year’s end. And, according to ABC’s November Construction Confidence Index, the readings for sales, profit margins and staffing levels once again decreased, although staffing levels remained above the threshold of 50, indicating expectations of expansion over the next 6 months.
“Even with all these negative signs in the construction market, there are some bright spots,” Basu said. “One segment that has benefited from the shutdowns and social distancing measures is e-commerce.”
Click here to read ABC's full economic outlook.
The Equipment Leasing & Finance Foundation
Equipment and software investment growth fared better than overall gross domestic product (GDP) growth in 2020 as businesses invested to adapt to the COVID-19 pandemic, and growth should remain well into positive territory in the beginning of 2021.
Annual equipment and software investment growth of 7.8% is forecast for 2021. Annual U.S. GDP growth for 2021 is forecast at 4.7%, according to the 2021 Equipment Leasing & Finance U.S. Economic Outlook by the Equipment Leasing & Finance Foundation.
“This update, while reflecting widely disparate performance in various segments of the economy, indicates the worst of the economic downturn appears to be in the rearview mirror—although that does not mean the road ahead is clear. Equipment and software investment surged to an annualized rate of 47% in Q3 after an unprecedented 28% decline in Q2. In Q3, investment levels in 11 of the 12 equipment verticals that the foundation monitors improved and nine experienced double or triple-digit growth. Prospects of widely-distributed vaccines in 2021 should provide a boost to the economy, particularly in transportation-focused industries,” said Scott Thacker, Foundation chair and chief executive officer of Ivory Consulting Corporation.
Highlights from the foundation's 2021 Outlook include:
- While equipment and software investment is forecast to grow 7.8% (annualized) in 2021, some industries will likely continue to struggle under the weight of the pandemic until a vaccine is widely available.
- The U.S. economy expanded at an unprecedented 33.1% (revised) annualized rate in Q3 as the nation partially reopened. However, GDP is still well below its level at the end of 2019, underscoring the long road ahead to a full recovery.
- The U.S. manufacturing sector recovery continued in late 2020. Shipments and new orders of core capital goods rose to record levels as firms in several industries responded to elevated demand. Though output is relatively close to pre-pandemic levels, manufacturing employment remains significantly depressed.
- On Main Street, the fragile equilibrium of the late summer and early fall faces another serious threat this winter. Record COVID cases and deaths have forced several major cities to impose new lockdowns, and the effects are beginning to show. Small business revenues are falling while Main Street awaits the vaccine and another targeted federal relief effort.
- The Federal Reserve remains committed to keeping interest rates at or near zero for several years. The Fed also intends to continue its liquidity-boosting measures, though its officials have stated that monetary policy alone is likely insufficient to prop up the U.S. economy.
Click here to download the foundation's full report.
According to the association, the 2021 macroeconomic forecast will likely be heavily influenced by the widespread availability of COVID-19 vaccines in Q1 of 2021. The 2021 predictions for truck chassis, tractor and van sales were all positive, ranging in percentage growth from 2% (GVWR 5) to 30% (Classes 7-8 tractor sales).
In short, NTEA predicts growth in the coming year, but work truck industry companies and fleet managers should not expect a return to the highs of 2019. The IHS MarkIt's most recent survey predicts chassis sales may not return to 2019 levels until sometime around or after 2024.
"As of publication, in the most recent update (July 2020) of IHS Markit’s industry forecast, new Class 3-8 commercial truck registrations were predicted to fall about 30% in 2020, and bounce back in 2021 at a 17% rate. Due to the pandemic, the July 2020 estimate is more negative than the one released in December 2019. As of October, though, based on data through September and anecdotal industry evidence, NTEA believes the estimate may be too pessimistic. The association predicts commercial truck chassis sales will decline 15.8% due to relatively good third-quarter 2020 sales and expectations for even better fourth-quarter sales (relative to the same time period in 2019)," writes Steve Latin-Kasper, NTEA senior director of market data and research.
Click here to read NTEA's full outlook.