The New Metals Opportunities in Building Things
While the rest of the economy barely shuffles along these days, there are and will be business opportunities in construction across the country. “Construction is outperforming the rest of the economy,” according to Kenneth Simonson, chief economist for the Associated General Contractors of America. “And manufacturing has been the superstar this year, with spending up 20% to 30% over last.”
The manufacturing hotspots are mainly in the chemical sectors with plant and component assembly, and energy-related transportation equipment where orders for light and heavy trucks, rail cars, barges and even airplanes have hit record highs. But spending on hotels, motels and resorts will be up a startling 42% this year over last, and should continue into next year, Simonson told the MSCI Economic Summit audience in September. Spending on healthcare facilities and data centers is also rebounding across the country, he said.
Three major sectors offer continuing opportunity for metals suppliers and manufacturers. The “shale gale” even with prices and production slowing, is still demanding downstream infrastructure, such as site preparation, petro chemical plant expansions, new LNG export terminals and fueling stations. Pipeline construction, on the other hand, is slowing along with production.
Second, the newly expanded Panama Canal has been propelling U.S. port expansions from Seattle-Tacoma to San Diego on the west coast, from New York-New Jersey to Miami on the east and at Houston and New Orleans in the Gulf. Simonson said the new, bigger Panama Canal locks could be operational in as soon as nine months. Which means and has meant, significant spending on cranes, storage units, bridge and tunnel upgrading and rail yards all aimed at handling the increase in shipments.
Simonson said the new, bigger Panama Canal locks could be operational in as soon as nine months. Which means and has meant, significant spending on cranes, storage units, bridge and tunnel upgrading and rail yards all aimed at handling the increase in shipments.
The third trend, which should also continue into next year, is the increase in residential construction with multifamily units up 24% over the last four years and single-family units up 13% in the same period. Vacancy rates are at or near multi-year lows in most U.S. cities, Simonson said, and the trend toward urban living seems certain to continue. He estimated multifamily construction would be up 10% to 20% this year and continue into next with single family units growing at about the same rate. The only threat to this growth, Simonson said, could be tighter credit, perhaps kicked off when the Fed raises interest rates.
Even in sectors where the economy is changing the nature of construction, there are opportunities, Simonson said. For example, as consumers switch increasingly from mall and store shopping to online there will be less activity in bricks and mortar. But the online boom requires more “massive warehouses and distribution centers that use lots of metals,” Simonson said.
Likewise, the nature of office construction is changing as well, with little or no action in the huge office parks of yesterday. Offices themselves are smaller and built on more open plans. Nevertheless, Simonson said, “we are seeing more projects in cities like Dallas, Boston and New York, but they are smaller.”
The dark spot in all this, he reminded the conference audience, is the outlook for government spending. “The real risk is that Congress won’t renew the Highway Trust Fund with any real new money,” he said. Consequently, he said, “While I am optimistic about the U.S. economy in general, I am not optimistic at all about infrastructure spending.”