Special report: 2022 construction forecast shows reason to invest
By Chris SleightJanuary 12, 2022
2021 was not the true “post pandemic” year that was predicted, although the economic picture is better than anticipated. With Covid variants still a threat, the pandemic is impacting the vitality of many industries, but construction is not one of them.
Construction equipment markets bounced back more strongly than expected at the start of 2021, particularly in North America and Europe. At the global level this means a record number of construction machines were sold in 2021. What’s more, many OEMs and dealers believe their sales could have been much higher were it not for the supply chain and shipping difficulties which caused headaches in every physical goods market.
The key takeaways from 2021 were these intertwined issues around supply chains, shipping and scarcity. It is a complex problem with no simple solution. Fundamentally, it will take time for the shipping and transport industries to get back to normal in terms of both capacity, availability and pricing.
I think the pandemic may have highlighted for producers of any goods, including construction machines, that the march toward lean manufacturing, just-in-time delivery and global components sourcing has its frailties.
Confidence going into 2022
Construction at both a global and North American level looks good. There has been something of a global residential building boom since the start of the pandemic. The shift to home working for white collar workers, combined with low interest rates and household savings on commuting, traveling and recreation costs led many people to either move to a bigger property to give themselves a home office, or to extend their existing properties.
That strength in residential construction in North America still has legs as we move into 2022 – that comes through very clearly in data on housing permits
There is obviously also buoyancy around the infrastructure sector at both the global and North American level due to the various stimulus spending measures which governments are putting in place. I do not think these will necessarily lead to a construction boom, but they are important in giving contractors the confidence to invest in equipment and people.
If there is a concern, it is around nonresidential building. The move to home working and video conferencing, some of which will be a permanent part of our future habits, means there is less need for office space, commuter infrastructure, national and international travel hubs, hotels, restaurants and so on. That does not mean our city centers and airports will be ghost towns, but the need for those types of buildings will be less than they were, and that means new structures will not be built as soon as we might have expected in the pre-Covid world.
We see the boom which began in the latter part of 2020, and which ran throughout 2021, continuing in 2022. If anything, it is being stretched out due to the issues of scarcity – be it labor, materials or equipment – which were clearly a brake on construction activity in 2021.
The concern is that if supply issues are not resolved, then inflation will continue to spiral, pushing up costs, forcing the Fed’s hand on interest rate rises and potentially making projects uneconomical.
The concerns we have are not so much for 2022, but the few years beyond. The financial cost of supporting people and businesses throughout the pandemic has been astronomical, and that bill must be paid at some point. Governments have three options to reduce debt – raising taxes, cutting spending and waiting for inflation to diminish the real term cost over time.
We believe that a move toward austerity through spending cuts could start to be seen in 2023. It would clearly hamper economic growth, and if that happens construction will feel some pain.
Supply chain issues and materials cost increases
Supply chain issues and materials pricing make up a very complex global problem, and it is simply going to take time for all the issues around production capacity, global shipping, port capacity and so on to be worked out.
Construction and manufacturing were also hit by the ‘Great Retirement’ of 2021. It’s been apparent for years that these industries relied on an aging male workforce. This is now causing serious labor and skills shortages. Making these industries more attractive career paths to women and young people is pressing. There are big issues to address around salaries, working conditions, workplace culture, diversity and inclusivity which have been talked about to death, but not genuinely acted on.
Congress finally passing the $1-trillion infrastructure bill is of course positive, but there are subtleties to consider. The first point is that the definition of infrastructure in the bill is broad, and there is a lot of diversity in the way the money will be spent. The $1-trillion figure does not mean that $1 billion worth of concrete will be poured. When you get down to the money that will be spent on bricks and mortar, I do not see a big enough figure to cause a boom in construction or equipment sales.
I also go back to the issues of scarcity of labor, materials and equipment – it’s hard to see how construction has the capacity to boom. More than anything, the infrastructure bill gives contractors and rental companies a degree of certainty about the pipeline of work and the confidence to invest.
Chris Sleight is one of the world’s leading authorities on global construction equipment markets . He holds an honors degree in civil engineering, and served as editor of KHL Group’s International Construction and Construction Europe. Following the acquisition of Off-Highway Research by KHL in 2015, he transferred to the market intelligence, forecasting and management consultancy business. He assumed the role of managing director of the business unit at the start of 2018.