NPCA forecasts a 7% increase in the precast, prestressed and reinforced concrete pipe sectors in 2016, bringing total sales volume to $22.7 billion.
By Bob Whitmore
Precast concrete manufacturers who landed on their feet after the Great Recession have now had two years of recovery. After reaching the depths of the recession and slowly climbing out, 2014 and 2015 produced rising sales of precast, prestressed and reinforced concrete pipe products. And 2016 looks like more of the same.
While the all-important public works sector is expected to be flat next year, the diversity of the precast concrete industry should keep it in recovery, with 7% growth expected in 2016. That translates to about $22.7 billion in sales of precast, prestressed and reinforced concrete pipe products.
“Companies that get through a severe recession generally emerge leaner and stronger because they have made the tough decisions needed to survive,” said Ty Gable, president of National Precast Concrete Association. “The precast industry lost about 40% in sales at the bottom of the recession and now we’re working our way back.”
If 2016 pans out as expected, the industry will have recovered much of its losses and will be at about 82% of its peak year of $27.5 billion in sales in 2007.
Transportation Bill Provides A Stimulus
Gable said the recent passage of the five-year, $305 billion highway bill will be a key economic driver for the industry, since many established precast companies provide products for transportation infrastructure. The passage of a highway bill will not have much of an effect on the bottom line in 2016, however.
“Most of the large transportation projects that will start because of the new highway bill will take about a year to get going,” Gable said. “A highway bill still provides a positive stimulus for 2016 as precasters and suppliers ramp up, but the actual work likely won’t happen until 2017.”
Many precasters branched into new products during the lean years of 2009-2012, and they are now collecting the dividends with increased business based on a more diversified portfolio of products. Custom precast projects, where profit margins are typically greater, helped stabilize the industry during the recession and are now providing some precasters with growth opportunities, according to Gable.
“We often hear about precasters who start working with specifiers early in the design phase and are able to show them how precast can save time on the project, reduce labor costs and provide a just-in-time delivery solution,” Gable said. “Those elements are more important than ever in the construction industry, and they feed into the strengths of precast as a modern building material. Precasters who are on the leading edge have become very good at bringing specifiers into their plants for lunch and learns and plant tours and then showing them how custom work can benefit them in a variety of ways.
“During the recession, it was a means for survival. Now it’s a way to continue to grow the business.”
The American Institute of Architects annually publishes a consensus forecast that combines seven construction industry forecasts and averages their findings. The AIA consensus forecast shows a 7.7% increase in nonresidential construction for 2015 followed by an 8.2% increase in 2016. The NPCA forecast is skewed toward public sector spending, because the majority of precast products are delivered to publicly funded projects, but includes residential products as well as nonresidential. The public sector is likely to grow in 2016 at the local level, while federal funding remains flat.
The importance of federal funding for heavy construction that often includes precast elements tempers what would otherwise be a more optimistic NPCA forecast, Gable said.
“A 7% increase is still strong growth and indicates a healthy precast sector that is keeping pace with the rest of the construction industry’s recovery.”
A look at AIA’s architectural billings index and the Associated Builders and Contractors Construction Backlog Indicator helps point to where the precast industry is headed in 2016.
“Design activity tends to lead construction by nine-to-12 months,” said Kermit Baker, AIA chief economist, speaking during the 2016 Collaborative Construction Economic Forecast webinar on Nov. 11. “The architectural billings index is continuing to trend up.”
He said that “the billings index is highly correlated with the construction industry as a whole.” The AIA index has had some of its strongest scores since before the recession, suggesting that we should see healthy growth in the quarters and years ahead of us.”
Anirban Basu, chief economist at Associated Builders and Contractors, echoed that optimism during the same webinar.
“ABC’s national Construction Backlog Indicator stands at 8.5 months,” he said. “Contractors are actually turning away work because they can’t find available labor or just don’t have the capacity. During the recession it was demand issues – the work wasn’t there.
“The focus has now shifted to supply constraints – the backlog number indicates that most contractors can expect to be busy in 2016.”
One of the factors driving ABC’s forecast of a 7.4% increase in nonresidential construction spending is that “the public sector is coming back,” Basu said.
“State and local government finances are continuing to improve,” he added. “So we’re seeing improvement in publicly funded sectors like sewage and waste disposal, educational, transportation, highway and street, and water supply. My very strong sense is that progress at the state and local government level continues fiscally.
“All of that suggests that nonresidential construction can continue to recover.”
Not crystal clear
While the fundamentals point toward a positive forecast for 2016, forces outside the construction industry could impact next year’s results. If interest rates rise, homebuilding could underperform, for example. Homeowners who might otherwise be ready to move up and build a new home may not be willing to give up their current 3% loan for a higher rate on a new 30-year mortgage. In addition, labor shortages that now plague the precast industry are common throughout the homebuilding sector and other areas of construction and could slow the recovery. Also, worldwide events such as increased terrorism, ongoing conflicts and financial problems that plague the European Union could keep the focus of Congress overseas rather than working on rebuilding infrastructure at home.
“The picture is never crystal clear,” Gable said, “but the precast industry is well positioned for a strong year, and we are looking forward to continuing the recovery.”
Bob Whitmore is NPCA’s vice president of communication and public affairs.