What goes up must come down. At least that’s how the old adage goes.
What that adage doesn’t answer, however, is when that descent must begin. And that’s exactly the question that remains to be answered as the construction materials industry reflects on 2019 and looks ahead to 2020.
“[2019 was] pretty steady,” says John Scepaniak, project manager at Wm. D. Scepaniak, a Minnesota-based company that produces more than 6 million tons of sand and gravel each year. “There was some growth, but it was just steady, consistent growth, which I think is a good thing.”
That sentiment of steady growth in 2019 seems to be pervasive throughout the industry. While there are headwinds both in the immediate picture and on the horizon, there is also reason for optimism – albeit cautious – throughout the industry.
“I think a lot of people realize that we’re nine years or so into a recovery,” says Brian Turmail, spokesman for the Associated General Contractors of America. “Is 2020 the year the music stops? Do we have a soft landing? Do we have a hard landing? We do hear a mixed report from our members in that we have a good backlog, a lot of demand, but we’re still nervous.”
2019 reflections
Growth was still there to be had in 2019, just not to the same extent as in 2018 and 2017 when the industry experienced accelerated growth.
“Investment in construction activity went up in 2019, so it’s been another good year for our members,” Turmail says. “The market was stronger in 2019 than it was in 2018, but the rate of growth slowed a little bit.”
William Turley, executive director of the Construction & Demolition Recycling Association, concurs with this sentiment, noting positive signs for the recycled material markets.
“In general, construction activity remains high,” Turley says. “That means waste generation is also high, and mixed C&D recyclers have continued to see a lot of material coming into their facilities.”
Based on those observations, it’s apparent two things are true: construction activity remains high, just not to the same level as recent years.
After increasing 3 percent in 2018, U.S. construction starts dipped an estimated 1 percent in 2019, according to Dodge Data & Analytics. While everyone desires a continued upward trajectory, there are potential pitfalls to such a rapid economic rise.
“Ten years ago, we went through a phase where we had some rapid growth, we made a lot of capital investments and things were just going gangbusters,” Scepaniak says. “Then all of the sudden, it slows down and it feels like there’s this big vacuum of work. Going into 2020, we see this steady, consistent growth, which I think is going to be good for the long run.”
Another positive sign for the construction materials industry is that growth isn’t just specific to one region of the country, but rather the majority of U.S. markets.
“Most of the country is in growth mode right now,” Turmail says. “We’ve seen a return to growth in many of the Sun Belt markets, but we’ve also seen growth in some traditional Rust Belt markets. Toledo and Detroit continue to have robust construction activity. Demand for construction tends to be closely linked to overall economic performance. The economy is strong, it’s growing, institutions have resources and there is a lot of investment across the board.”
2019 challenges
That industry-wide growth is exemplified in contractors and manufacturers continuing to hire for immediate projects and a backlog of future work.
Still, the challenge of finding those qualified, capable people to meet that demand continues to persist.
“As with the past several years, the biggest concern for our industry has been the tight labor markets,” Turmail says. “By in large, our members spent much of this year worrying more about where they were going to find workers than they did worrying about where they were going to find work.”
Even when labor is available and hired, the next challenge becomes retaining that workforce, which can be frustrating for both contractors and manufacturers.
“We would bring people in, train them, get them really going in their role, and they’d go somewhere else – and a lot of times it wasn’t even in our industry,” Scepaniak says. “It’s difficult because it gets frustrating.
You’re like, ‘gosh, why would I spend time investing in people?’ But that’s a wrong thought. You need to continue to invest in people and it’s ultimately going to fall down to attrition.”
Scepaniak notes his company sees a lot of success through employee referrals, which can help set clear expectations of what comes along with the job responsibilities and the company.
“When the hiring doesn’t go great is when people have a misunderstanding of what you do or what your business actually does,” Scepaniak says. “If people come to the interview process with a strong notion of who you are and what you’re about, that’s helpful.”
The labor challenge wasn’t the only familiar theme of 2019. While producers hoped inclement weather in 2018 was an anomaly, similar circumstances once again caused headaches throughout the industry in 2019.
“Weather was our biggest challenge,” Scepaniak says. “It was a very wet spring and even this fall we experienced a lot of rain, so we have a lot of missed time because of rainfall. Overall, it was a very late start and we might be forced into a seasonably-early finish.”
Tariffs and trade battles also proved to be challenges outside of the industry’s control in 2019.
“Trade wars, even if they’re justified, bring a lot of uncertainty,” Turmail says. “There’s no doubt the trade battles we’ve been engaged in have worried and, in some cases, significantly impacted our members. It’s contributing to a lot of materials price uncertainty.”
Separately, while the industry has patiently waited for years for a federal infrastructure bill, 2019 came and went without those hopes coming to fruition.
“Certainly, we would have liked to see an infrastructure bill passed this year,” Turmail says. “So we certainly feel a missed opportunity on the infrastructure bill that wasn’t in 2019.”
Perhaps industry expectations should shift from hoping for one big bill to incremental funding that will help push the industry forward.
“Our expectation is even if we won’t see a big [infrastructure] bill, we’ll see smaller infrastructure bills tackling different parts of the infrastructure equation where there’s still an opportunity to increase
investments,” Turmail says. “Our immediate priorities are working with Congress to get a federal aviation bill passed that increases the resources available to modernize airports, and obviously to work on a surface transportation measure that funds needed improvements to our highways and transit systems.”
2020 outlook
Dodge Data & Analytics, for one, predicts total U.S. construction starts will slip 4 percent in 2020 to $776 billion – a contrast following 3 percent growth from 2018 into 2019.
“The recovery in construction starts that began during 2010 in the aftermath of the Great Recession is coming to an end,” says Richard Branch, chief economist for Dodge Data & Analytics. “Easing economic growth, driven by mounting trade tension and lack of skilled labor, will lead to a broad-based, but orderly pullback in construction starts in 2020.”
Even if construction investment declines in 2020, it’s not as though the industry is headed toward a cliff similar to the Great Recession.
“Economic growth is slowing but is not anticipated to contract next year,” Branch says. “Construction starts, therefore, will decline but the level of activity will remain close to recent highs.”
From a manufacturer’s perspective, Stephane Giroudon, sales director for America at Montabert, also sees some optimism – again, albeit cautious – in the new year.
“We think the market is still at a very decent level,” Giroudon says. “We’re pretty confident about next year, but again, we don’t think the market is going to be growing very much.”
Turmail holds a similar view when looking ahead to 2020.
“There are a lot of positive signs, but there are enough shadows coming into the picture that we’re cautious,” Turmail says.
One added boost for 2020 comes in March in the form of ConExpo-Con/Agg, the largest construction trade show in North America. The once-every-three-years show returns to Las Vegas from March 10-14.
“Any time you can bring the industry together, it’s nice, because we’re so, for the lack of a better term, self-involved or focused on our own thing, we forget any pain we’re having is most likely shared by the majority of people in our industry,” Scepaniak says. “It’s good to bump into those people, bounce ideas off of them and I think there are a lot of good business partnerships that emerge from ConExpo. A lot of good relationships can be built out there.”
Giroudon is also looking forward to the event, which is expected to draw upwards of 130,000 visitors.
“We’re really excited about ConExpo,” Giroudon says. “We think it’s going to be a great show for the industry.”
Takeaways
While there are reasons to be wary of what lies ahead for the construction materials industry, potential headwinds will always exist. What’s important is that construction activity continues to counteract and balance those headwinds, providing yet another year of stability in 2020.
“There’s going to be steady growth [in 2020],” Scepaniak says. “I would expect growth for the demand of crushing, screening and washing materials is going to be steady. I see an emerging market for us is going to be recycled materials. Our group really does believe in recycled materials as becoming a very, very strong market in the next few years – bigger than it is already. I think everything else will be relatively strong – sand and gravel, asphalt, concrete material.”
After all, those that remember the lean years of the Great Recession would be hard-pressed to argue with 2020 being similar to 2019 – or, in other words, “steady.”
“We’re excited,” Scepaniak says. “You’re going to have good years and bad years, but even when you have a relatively steady year, I think that’s something to be thankful for and you have to make the most of it.”