August 2013

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Industry Overview for starts in 2013. Single-family starts in particular may slow for the rest of the year, for reasons relating to both supply and demand. On the supply side, some builders say they have had trouble finding enough workers or materials. Others complain about a lack of land in desirable locations or of slow approvals to build on it by local agencies, many of which have undergone severe personnel cuts in the seven years since home construction peaked. There are also reports that builders are deliberately slowing production because a lean inventory enables them to raise prices once a subdivision is launched. Demand for both existing and new single-family houses has unquestionably been growing. New-home sales jumped 29 percent year-to-date through May, the Census Bureau reported, while the National Association of Realtors said existing-home sales in May climbed 13 percent from a year earlier. However, there are several factors that may curb demand at lower levels than it reached last decade. Population growth among prime homebuying ages, 25-54, has slowed, as have the numbers of marriages, first births and second or subsequent births – all events that traditionally stimulate home purchases. There appears to be, for now at least, a shift in preferences among would-be homeowners to live closer to transit, jobs and shopping in large metro areas even when that means sacrificing detached housing for townhouses and apartments. And rising mortgage rates and house prices, combined with sluggish personal income growth and lingering uncertainty about the stability of employment, may price some buyers out of the market or make them reluctant to commit to purchasing. These headwinds for homeownership are tailwinds for rentals and for multifamily housing. While it is not realistic to expect ongoing 50 percent year-over-year growth in multifamily construction, the growth rate should continue to exceed that of single-family construction well into 2014, or perhaps beyond. Nonresidential Doldrums The largest categories of private nonresidential construction as classified by Census are power ($83 billion in 2012), manufacturing ($46 billion), commercial ($43 billion), healthcare ($31 billion) and office ($28 billion). There are significant differences in the recent trends and outlook for these segments. Power construction includes all types of power generation (coal, gas, nuclear, renewables), transmission and distribution, as well as oil and gas fields and pipelines. The huge expansion of oil and gas drilling spurred by advances in hydraulic fracturing and horizontal drilling has boosted demand for both power and energy construction, even though the wells themselves count as mining, not construction. Each of the thousands of new wells requires an access road, site preparation, a pad for the drilling equipment, a pond for the water that is injected into the well, housing for the pumping and processing machinery, and a pipeline or storage tanks for taking the products offsite. New interstate pipelines are being built and older ones expanded and sometimes reversed. Utilities are building natural-gas-fired power plants to replace coal-fired plants. These and other one-time factors led to a 29 percent leap in private power construction in 2012. Yet power construction in the first five months of 2013 was down 5 percent from the same period in 2012, and a surge in power that occurred at the end of 2012 was propelled by an expiring wind production tax credit that led to a frenzy of spending that is unlikely to be repeated this year. Spending on four new nuclear reactors in Georgia and South Carolina that began in the spring of 2012 will contribute to a steady level of outlays this year, but no similar additional projects are likely to break ground. Meanwhile, oil and gas drilling has tapered off for the moment. Thus, power and energy construction may end 2013 level with, or slightly below, the 2012 total. Beyond 2013, the outlook remains bright, particularly if the Keystone XL pipeline finally wins approval. Manufacturing construction climbed 18 percent last year and a more modest 5 percent so far in 2013. (continued on next page) August 2013 | Construction Equipment Distribution | www.cedmag.com | 43 42_Simonson_Feature_KP.indd 43 7/25/13 12:49 PM

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