Precast concrete sectors should grow despite a flat overall year for the construction industry in North America
Despite ongoing labor shortages and indications that the economy is slowing, the precast concrete sector of the construction industry in North America should continue to prosper in 2020. Even as the picture for total construction starts looks flat, the segments where precast is most prevalent are the most likely to grow. That’s the overriding view of construction economists, equipment suppliers and large regional precast concrete manufacturers interviewed in late November 2019 for the Precast Forecast 2020.
At the 81st Dodge Data & Analytics Outlook Conference, one of the industry’s premier forecasts, Richard Branch, chief economist, presented his report that shows a decline of 1% in 2019, to $809 billion in new construction starts, followed by an additional fallback of 4% in 2020, to $776 billion.
Among the precast elements that Smith-Midland Corp. provided for the Interstate 66 upgrade near Washington D.C. are 245,000 linear feet (74,676 meters) of its JJ Hooks precast concrete safety barrier.
A flagging U.S. economy projected to grow at 1.5% next year, weakness in the manufacturing sector, and significant declines of 5% in single-family and 13% in multi-family housing starts are among the critical factors cited by Branch.
This is a “broad based, but orderly pullback,” Branch stated in a media release detailing the report. Branch stressed that this would be nothing like the last cycle 10 years ago, when the bottom dropped out of the construction industry, with sales at some companies contracting 40% or more. “It will not be a repeat of what the construction industry endured during the Great Recession,” Branch stated. “Construction starts will decline but the level of activity will remain close to recent highs.”
While total construction may pull back, Branch made an observation that is key to the positive forecast for the precast sector in 2020. “Public works won’t yet feel the effects of the economic slowdown in 2020,” he stated, “because the sector is publicly funded and responds to changing economic conditions with a lag.”
Upbeat at AGC
Ken Simonson, chief economist for Associated General Contractors, looks at his data set and comes away with a more optimistic outlook, especially when it comes to housing.
“I’m more upbeat than the crowd about single-family and multi-family housing because I think both of those segments will grow in 2020,” Simonson said. “I do think 2020 will be a positive year across the board for construction, and that goes along with an expectation that the U.S. economy will continue to grow and add jobs.”
Spending on highways and streets should continue to grow, Simonson said, despite inaction in Congress to deliver an infrastructure package. Federal transportation funding has at least remained stable, while state and local governments have taken matters into their own hands and are not waiting on Congress. Transportation is a key sector for the precast industry, which contributes a wide range of products such as reinforced concrete pipe, box culvert, utility boxes, traffic barriers, bridge components, retaining walls, and sound mitigation walls.
“We’ve had seven or eight years of states increasing their fuel taxes or other highway funding sources,” Simonson said. In 2019, Illinois became the 31st state in the decade to raise its gas tax, doubling the per gallon fee from 19 cents to 38 cents, for example. Other states raised fuel taxes years ago, and after several years of increased tax revenue, they now have money to spend.
“A lot of those states have more money to put toward highway reconstruction,” Simonson said. “We’ve also seen an increase in toll-funded projects, either from traditional agencies or public-private partnerships. All of this has contributed to a recent jump in highway spending.”
Anirban Basu, chief economist for American Builders and Contractors, sees the slowing economy playing out in an overall decline of nonresidential construction spending, but sees growth within the precast-oriented sectors.
“Public construction seems to be the only bright spot in terms of spending growth, with spending on categories such as public safety up 8.5% compared to the same time last year. Sewage and waste disposal, another category primarily driven by public spending, is up 18%,” Basu said. “Public construction should continue to be a source of strength next year. Continued low unemployment means more people in the workforce and more spending and more tax revenues. All things being equal, this creates more resources to finance public works,” he added.
Suppliers Remain Bullish
Equipment suppliers can be seen as a key indicator for the precast industry, reflecting the confidence of precast manufacturers, who are looking ahead to the coming year and determining whether to invest in new equipment, add new product lines or expand their facilities.
Afinitas is a global infrastructure equipment manufacturer headquartered in St. Louis, Missouri, with five brands well-known among precast manufacturers: HawkeyePedershaab, BFS, New Hampton Metal Fab, CAM Products and Spillman. Afinitas companies provide concrete pipe, manhole and box culvert manufacturing machinery, veneer stone and concrete block equipment, automated handling solutions, dry-cast and wet-cast forming systems and more.
Brad Schmidgall, Afinitas CEO, is solidly upbeat about 2020 based on his company’s metrics.
“I hear all the economic rumblings regarding a slowdown or a retrenchment, and I literally don’t see any signs of that within the North American market or even the global market,” he said. “Currently within our factories in the United States, every one of them is full for the foreseeable future and that’s the first time I can say that in probably the last three years. Our international factories are full and we’re getting broad orders globally.
The company saw a slowdown internationally in recent years in the Middle East due to “oil prices and geopolitical issues,” Schmidgall said, but the tide has turned. “We’re starting to see strong order activity again in the Middle East. In North America we are projecting significant growth over last year, so I’m no sensing whatever this economic slowdown is. I’m also cognizant of the fact that we are on the tail end of the typical economic cycle, so maybe we experience it later,” he added. “But right now, I would say we are absolutely bullish about this year.”
Advanced Concrete Technology (ACT) supplies comprehensive mixing and batching equipment and advanced plant designs for precast concrete, concrete block and paver, architectural precast and other related manufacturing facilities.
Charles Watkins, sales engineer at ACT, said the company expects to continue its solid performance through 2020.
“The last few years have been reflective of the strong economy,” he said. “As an equipment manufacturer/supplier, ACT has been very busy. Likewise, many precast producers are investing in expansions, upgrades and improvements to increase production capacity while also building resiliency within their process. Right now, it looks like all the momentum is carrying over into the new year.”
Demand for structures using complex mixes such as Ultra High Performance Concrete (UHPC) has led to some manufacturers seeking to upgrade their mixing and batching equipment, Watkins said. “There is continued opportunity for growth in terms of precasters diversifying their product lines and expanding production technology.”
E. Max Hoene, ACT chairman, sees a continuing movement toward more automation and more sophisticated technology as the industry evolves.
“We are certain that our customers will continue to move toward producing a greater variety of precast products with an ever-tighter workforce,” he said. “Efficient productivity is key to success. We are also seeing that precast production systems need to be more closely integrated with plant ERP management systems that enable real-time performance information data tracking. Sustainability and greener productivity are becoming pressing current issues for our industry.”
Gate Precast is one of North America’s largest producers of architectural precast concrete, prestressed hollow core slabs, transportation, infrastructure and marine structures. The company operates nine manufacturing facilities in six states across the Southern U.S.
Dean Gwin, president and COO, sees a continued high level of sales, but fewer mega-projects on the horizon.
“We feel the number of opportunities will be similar, but we are not seeing as many large projects with large quantities of architectural cladding,” he said. Gate will be supplying a diverse range of products throughout its service area in the coming year, which demonstrates the almost infinite capabilities of precast concrete in today’s construction environment.
For example, the company is producing ornate architectural precast cladding for the Virginia General Assembly in Richmond, creating its own precision molds with a 5-axis CNC machine. Its insulated architectural wall panels will be used in the construction of multiple data centers in Tennessee, Texas and possibly Alabama. Precast parking garages, high-end brick inlaid architectural cladding and cladding to resemble limestone are staples for the company and will be supplied throughout Gate’s service area.
The one issue plaguing Gate Precast and most other construction companies is finding skilled labor, so Gate is finding ways to work around it, Gwin said.
“Carpenters are tough to find. We are supplementing that work by using 3D printers and CNC machines,” he said. The insulated panels Gate is supplying to the massive Domino Sugar development in Brooklyn, New York, for example, were cast in molds made from a 3D printer, “due to complexity and speed,” Gwin said.
Smith-Midland Sees Continued Growth Ahead
With its recent addition of a third manufacturing plant in North Carolina, Smith-Midland Corp. services the Atlantic Seaboard, from Boston to Atlanta, with a major presence in the corridor from Washington, D.C. to New York City. The company’s main plant is based in Midland, Virginia, about 60 miles (96 kilometers) from Washington. Ashley Smith, CEO, sees continued strong sales throughout its main product lines.
“We just had our best quarter ever,” Smith said. “Revenue-wise, the third quarter of 2019 was the best in the company’s history. With our backlog and what we see out there, we expect to continue to break records next year.”
Smith-Midland’s SlenderWall architectural precast cladding system is in high demand, as increasing numbers of developers and contractors move toward modular construction of high-rise multi-use developments in major urban centers. But that’s just one line of business for the company, which also produces a wide range of utility and agricultural products, Easy-Set buildings, traffic barriers, beach restoration structures and more.
Smith-Midland’s architectural precast SlenderWall panels grace the 800 Harbor Blvd. 3-tower high-rise complex in Weehawken, New Jersey.
The company’s manufacturing plant in Midland, Virginia, is expanding to create more room to store products, Smith said. A high level of highway construction around the nation’s capital continues to keep Smith-Midland busy.
“A lot of it is being driven by the I-66 project where they’re adding toll lanes outside the Beltway. There’s a lot of precast on that project, so we’re going to be busy with that as well.”
Skilled laborers are scarce in the Mid-Atlantic region, so Smith-Midland is concentrating on additional training for its current staff.
“We invested over $100,000 last year in training our associates to give them skills to make their jobs easier, and to just improve the way we run the business,” Smith said. “We feel that if somebody can come in, and if they’re willing to do the training, we’re willing to invest in them. At the end of the day, we want them to feel like they’ve made a difference – it’s not just a job. We have to have competitive wages too. That’s basic. And then we try to add other things on top.”
Finding skilled laborers has been less of an issue at Jensen Precast, a major precast manufacturer on the West Coast and Hawaii, with 18 locations and about 800 employees. Tom Morales, director of sales operations, said the company is, “fortunate to have a decent pool of skilled trades workers to employ, based on our customer needs. It may have something to do with Jensen Precast’s strong reputation in the industry and our starting hourly rate,” he said, “which is typically higher than competing businesses in any given location.”
While Morales agrees with the Dodge Data & Analytics forecast for a flat year in total construction, he believes Jensen Precast will continue to grow.
“Large transportation and stormwater projects look promising to us,” Morales said. “Jensen Precast will be supplying precast concrete structures for dry and wet utility infrastructure as well as stormwater treatment, detention, and bioinfiltration systems.”
While there is always some uncertainty in economic forecasting based on unforeseen events, the outlook from economists, equipment suppliers and manufacturers all points to another positive year for precast concrete manufacturing.