Construction market outlook hinges on infrastructure bill

AKRON—The one thing that dominates the outlook for the construction industry going forward is the pending injection of billions of dollars in government funding under the recently passed Infrastructure Act.

Dodge Construction Network forecasts an increase of 32.5 percent in non-building construction value year-over-year through 2026—that forecast would be 14.9 percent without the bill's passing, according to Dodge Chief Economist Richard Branch.

Like most industries, the construction market is facing three challenges in the new year: price, people and productivity.

"All those projects sitting in planning are taking longer to get through, and while construction starts will grow in 2022, that growth is expected to be modest," Branch said. "... It's very clear, as we put all of this together, that if not for the challenges, shortages and prices that we're currently facing, construction activity would be much stronger than it currently is."

The government funding "will undoubtedly drive construction activity and therefore push demand—new projects mean more equipment and older equipment being run for more hours, in turn more tires will be needed," said Paul Hawkins, senior vice president, aftermarket sales, North America for Titan International Inc.

"While this is a very large dollarized stimulant into the economy, at this time it is difficult to determine the direct impact it will make on the construction tire market," added David Smith, operational marketing manager for infrastructure and construction at Michelin North America.

"Our anticipation is that as recipients receive funds, that we will see a trickle effect into the tire market as early as the first quarter of 2023, maybe even fourth quarter of 2022."

Construction spending saw a positive upswing in the first half of 2021 that was on par with pre-pandemic levels, according to Rob Seibert, president of off-the-road tires at Bridgestone Americas Inc.

"With new project starts in both residential and industrial, along with an increase in employment versus 2020, we saw positive tire demand due to the continual recovery and confidence in the marketplace. Coupled with the new infrastructure bill, reports indicate strong market conditions and a positive outlook for the off-the-road market this year. Planning data continues to suggest a healthy level of construction to come in 2022," Seibert said.

The Association of Equipment Manufacturers (AEM) said members are expecting more mild growth in most categories this year, which could be due to the fact that 2021 performance was much stronger than expected.

Construction spending edged up 1.1 percent last year, and the AEM is forecasting 2.7 percent growth in 2022, surpassing 2019, which was considered a banner year for the industry.

Machinery sales for mining and construction in the U.S. were expected to increase 17.5 percent last year, with expectations for 7.7 percent growth this year, followed by 5.4 percent increase in 2023.

In a survey of AEM members last fall, about 44 percent expected demand for construction equipment will be above normal in 2022. However, nearly all manufacturers are impacted by supply chain issues.

Roughly 75 percent of AEM members reported a jump in new orders of construction equipment in the third quarter of 2021 but also manufacturers experienced backlog.

Meanwhile, a survey of construction contractors showed expectations of increased demand for numerous types of projects in 2022, despite ongoing supply-chain and labor challenges, according to a survey by the Associated General Contractors of America (AGCA) and Sage Construction & Real Estate.

Construction projects are facing labor shortages, supply-chain problems and rising materials costs. Rising construction costs and slowing schedules have contributed to a significant number of project delays and cancellations, the AGCA said. The survey noted that 46 percent of contractors report having a project delayed in 2021 but rescheduled, while 32 percent had a project postponed or canceled.

According to tire makers contacted by Tire Business, both the OE and replacement construction tire markets fared better than expected last year.

"We far exceeded our expectations on where we initially forecast the market to land," Smith said. "This growth is largely attributed to financial stimulus in the construction marketplace, funding new projects, and new residential growth. All these factors create a direct draw from OE and replacement tire sales."

Hawkins said that in 2020 OE manufacturers reduced production due to lower demand but then they had to ramp up and catch up when demand returned last year.

"Aftermarket demand was also strong with the uptick in construction activity last year. This created an interesting balance for us between getting product to OEs while also meeting aftermarket needs, and I think we did a good job ensuring both our key dealers and our key OE partners got what they needed," he said.

Hawkins said he expects the OE tire market to be very strong this year.

"Everyone in the world wants to increase production 10-20 percent, but it's contingent on getting enough labor and materials to do it. The aftermarket will be strong as well, and we're ensuring our key dealers have supply to serve the aftermarket," he said.

"We are expecting another strong year of growth in large construction and compact construction," Smith said. "This includes radial, bias and tracks. Yes, creating supply is a challenge that we will have to traverse throughout 2022. However, we are working very diligently to make sure that we are doing everything we can to meet our customer demand."

Chris Rhoades, assistant vice president of BKT USA Inc., said his company experienced "huge growth" last year and is expecting continued growth this year.

"One thing we're doing this year differently, we're going to go state by state and engage on the state level, like with the Association of General Contractors, road builders' associations, aggregate producers.

"We want to really make sure that we stay local and work with our dealers to support them and the different construction and aggregate producers, not just at a national level but also try to reach down into the regional and state level as well," Rhoades said.

The construction tire market faces the same high demand and low supply issues, as well as elevated pricing, as other markets.

"In prior years, the larger sizes were most impacted by the shortage, but this year, we've seen smaller sizes for skid steers and backhoes. That's likely due to strong activity in smaller construction projects such as business remodeling and home construction," Hawkins said, adding that he is expecting pricing to stabilize this year.

"It is no surprise that we (manufacturers) all are experiencing new growing pains to execute customer demands. Logistics bottlenecks, absenteeism, component shortages and many more things all play a major factor globally to produce in a timely manner," Smith said.

"We are experiencing inflation in raw materials, logistics, sourced components and more. While we are unable to determine if and when a price increase or decrease is in the future, we are making sure to provide the best performing construction tires and tracks to match the pricing that ensues," Smith said.

Bridgestone expanded production capacity at its Bloomington, Ill., plant to meet the demand for large radial sizes, including 18.00R33, 24.00R35, 35/65R33, 875/65R29 and 775/65R29, Seibert said.

"We recently switched production from Japan to Bloomington in order to meet our demand and reduce delivery time. Additionally, we opened a new plant in Thailand in 2019 to provide incremental supply to help fulfill strong North American market demand for 25-inch radials," Seibert said.

"Raw-material pricing, the infrastructure bill and development in China starting to slow will all be factors. There also seems to be a movement among domestic OEs toward trying to find more suppliers in North America and bring supply chains in closer proximity to them, which bodes well for Titan," Hawkins said.

For tire dealers who sell construction tires, keeping abreast of supply is key, according to the tire makers.

"They just need inventory. If they have inventory, they'll get the sale," Titan's Hawkins said.

"The biggest way to improve your sales this year is to deepen your partnership with Mich-elin and your local sales representative. The more information that you can provide to us on how to meet your needs, the better we can provide winning solutions for your business. Examples of this would be: Order lead time, New market insights, and where our product blind spots may be. Your success is our success," Smith said.

Bridgestone said it offers recurrent training, materials and field support to help dealers transition to new technologies.

"As new products, tools and technologies continue to be developed, I encourage construction tire dealers to adapt and learn how to install, configure, report, analyze and use them to maximize the efficiency of their operations," Seibert said.