Doubts Creep In at US Construction’s Big Show in Las Vegas

The industry’s first major trade event since 2020 felt like a celebration. But there was apprehension amid the high fives and backslapping.

(Bloomberg) — Hundreds of diggers, road pavers and other machines were on display in Las Vegas this week for the US construction industry’s first big trade show since the pandemic. Exhibitors relegated to reluctant elbow bumps in 2020 could once again shake hands. Demand is strong and order backlogs are long. At times, walking around all 55 acres of ConExpo almost felt like a party.

But between the high fives and backslaps, some serious conversations were taking place. With a banking rout roiling financial markets, and continued doubts over the US economy, one question prevailed: Will the US sector get through 2023 unscathed?

Ask the big-name suppliers, and the answer is a resounding yes.

“The input we’re receiving from our construction customers in North America is quite good,” Caterpillar Chief Executive Officer Jim Umpleby said on the sidelines of ConExpo. Deere & Co.’s Ryan Campbell, head of the construction and forestry business, echoed the optimism, saying order pipelines are filling up for new work into 2024 as equipment ages and customers seek to re-fleet.

But some equipment buyers struck a more cautious tone. Take for instance Steve Durante, vice president of Durante Rentals, a company that rents out heavy machinery in the New York City area. Locally, he sees shovel-ready projects put on hold due to low demand for new office space, apartments and retail storefronts. 

Mack Brice, an equipment dealer at Tractor & Equipment Co. in Atlanta, said demand is solid through the spring but he’s a little skeptical about the fourth quarter. “I think we will see a big pullback,” he noted over his morning coffee at the Conrad Hotel, steps away from the event grounds.

Much like economists can’t agree whether the US is barreling toward a recession, the construction industry is split as to whether the good times will last. And the times have certainly been good: According to government data, the value of construction on nonresidential projects started gathering pace in May of last year and three months later surpassed the pre-pandemic peak. Census Bureau data show an almost 16% increase in such spending in January from a year ago, with sizable annual gains coming in the manufacturing, lodging and commercial sectors. 

But rising interest rates and the biggest bank failure in 15 years have put financial markets on edge. If new projects are paused, it’s the contractors who’ll likely feel the pullback before the big vehicle producers, who have extended backlogs and dealership lots in need of machines. 

“Not only is the the cost of capital higher than it was a year ago, but with the failure of banks like SVB and Signature Bank and issues at other banks around the country and the world, financial conditions are set to weaken markedly,” said Anirban Basu, the founder of economic and policy consulting firm Sage Policy Group. “Project financing will be more difficult to acquire and as a result those contractors that work on developer and construction projects are less likely to have an especially bright future.”

One especially strong subsector, according to both Caterpillar and Deere, is demand for so-called mega-projects like battery and chip plants. These will likely be supercharged by the Biden administration’s initiatives to reduce US reliance on China for critical products that will be needed to expedite the energy transition and power new technologies.

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Planned projects in places like Michigan, Arizona, Ohio and North Carolina will draw in contractors both locally and from across the country, Basu said. But in parts of the country without these high-profile undertakings, contractors will face shortages of financing and demand, including slowing housing and non-residential growth.

“There are 16 states in the expansion of America’s computer chip manufacturing capacity, but we’re home to 50 states,” Basu said. “The contractors more geographically bound, if they’re in the wrong geographies, they may struggle. For contractors involved with those mega-projects, they’re going to continue to be very busy.”

–With assistance from Vince Golle.

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