For all the talk about rebuilding the nation’s infrastructure, it’s not happening yet – at least at the federal level. And that simple fact is driving a moderate Precast Forecast for 2018. NPCA expects the industry to grow about 3% in 2018, bringing total sales to $19.1 billion. This comes on the heels of steady growth of nearly 2.5% in 2017.
While there has been much discussion over how to define the scope and also finance President Trump’s proposed $1 trillion infrastructure build, there has been no relevant legislation to date. For precasters, that indicates that any meaningful work related to an infrastructure package will not likely come until 2019 or 2020. At the local level, however, widespread support for rebuilding infrastructure has led to the passage of bond issues for roads, bridges, schools, sewer systems and stormwater control – all good news for the precast concrete industry.
Local and regional markets
In the 2016 elections, voters across the country passed transportation funding ballot measures totaling $201 billion, according to the American Road & Transportation Builders Association. Those projects should filter down to the contractor level in 2018, which means there should be additional work to bid on for precasters in those areas of the country. School bond issues passed in 2016 are also leading to billions of dollars in new construction throughout the country, especially in Texas, California and Colorado. Long-term sewer and stormwater projects to comply with EPA mandates are also continuing in many rustbelt cities, with most of these initiatives projected to last into 2020 and beyond.
“The bad news is that we do not yet have a national initiative to rebuild our infrastructure,” said Ty Gable, NPCA president. “The good news is that many states and cities are doing it on their own. So, while public works construction is flat at the national level, we’re still seeing some growth through these local projects.”
The slow-but-steady growth figures over the last few years indicate that the rebound from the Great Recession has entered a mature phase, according to Robert Murray, chief economist at Dodge Data & Analytics. Speaking at the 79th Annual Dodge Construction Outlook conference in Chicago on Nov. 1., Murray said the rate of expansion has slowed, which is expected several years into a recovery.
Murray added that there is ample evidence to suggest the construction industry still has room to grow in 2018. It just won’t be growing as fast. During the Great Recession, the precast industry lost about 40% of its sales volume, according to the annual NPCA Benchmarking Report. Recovery started in 2011, and from 2012 to 2016, the industry regained about two-thirds of that lost sales volume.
“As an industry, we’re experiencing slow and orderly growth, and many precast companies are doing quite well,” Gable said. “There is also a lot of optimism on the horizon in terms of taxes and regulation that Congress is pledging to address.”
Factors such as a tax bill that would reduce rates for many precast companies and streamlined regulation that would speed up the start of major construction projects are positive indicators for the future, Gable said. But even if Congress acts now, those changes would not have a major impact until 2019 and beyond.
With the potential for such major changes on the horizon, forecasting beyond 2018 gets a bit murky. At the economic outlook conference, Murray noted that when looking at construction cycles over the last 50 years, the current recovery appears to be nearing its peak. Unlike the Great Recession, where the housing collapse nearly derailed the entire economy, the next recession should be relatively routine.
“No categories are overbuilt,” Murray said. When a downturn comes, “it will be relatively mild. And it’s also possible that once a peak is reached, the current cycle will remain close to that level for several years.”
As for the precast concrete sector, a mild construction recession in 2019 or 2020 could be offset by the passage of an infrastructure bill in 2018 that would provide substantial opportunities in a wide variety of product categories in the years to come.
Sector by sector
The NPCA Benchmarking Report divides the precast concrete industry into six major product groups: building and landscaping, sanitary and stormwater, transportation, utility and industrial, water and wastewater, and other. Five of the six product groups registered slight growth between 2015 and 2016. The water and wastewater category, which includes grease interceptors and septic tanks, fell back less than 1% from $1.23 billion in sales to $1.22 billion. So, while other categories are tracking in line with the orderly growth of the construction industry, water and wastewater lags slightly behind.
“It’s an indicator of the stiff competition with other materials in that sector,” Gable said. “We can say that we’re holding our own, but it is obvious that we need to continue a strong push in this area to defend our market share and potentially increase it.”