Trendlines: USA is paving a road to prosperity

The world is a buzz with optimism and record-breaking measures that seem to have no end, which makes sense considering the magnitude and overall depth of the Covid-19 pandemic-created chasm from which we are emerging.

Each day seems to improve on the last with the media constantly updating us on how restrictions on face masks, movement and social distancing are being lifted and the pandemic clouds begin to clear.

The United States is fortunate, because other major global regions like South America and Asia are still greatly suffering. Our Q1 GDP in 2021 was recorded at a remarkable 6.5 per cent. The Atlanta branch of the Federal Reserve is currently predicting a GDP reading of around 10% for Q2, which ends this month.

Although it continues to be recalibrated weekly, it remains nothing less than astonishing when you consider that between 2% to 3% is typically considered an ‘ideal’ growth rate. No wonder there is so much optimism.

What has pushed this economy resurgence?
Among the key economic factors propelling this dizzying resurgence are increased consumer spending due to pent up demand and the building back of inventories with an increase in manufacturing.

On the flip side, numerous supply chain issues – particularly semiconductors – continue to prove troublesome and present logistical obstacles to recovery. Inflationary pressures on raw materials like copper, lumber and steel could prompt some pumping of the brakes as well. But what do we do when there’s a problem at hand? The answer appears to be that we throw more money at it.

With the hoped-for passing of a much-needed and discussed Infrastructure Bill by Congress, the US government will bring our current system of roads and bridges up to date and set up the country for a stronger future, not to mention the number of jobs created and machinery purchased to undertake such a plan.

We need to keep our transportation system current, and it cannot be done with the diminishing funds accrued through gas taxes. Another aspect is that the contractors that do most of the work on our highways and streets are working with aging equipment that needs replacement.

Will we see a new dawn for roadbuilding?
Let us just assume Congress finds a way to see eye-to-eye for the first time in a long while and passes the Bill, which is long overdue. Should this miracle take place, I believe there is a strong possibility that road building equipment like asphalt pavers, compactors and even motor graders could be crucial components to this resurrection.

There are two types of asphalt pavers, commercial and highway. Commercial pavers are generally utilized on smaller projects (driveways, parking lots, park pathways etc), while highway pavers undertake the big jobs on interstate highways.

When the sun is out and we’re on a summer road trip with the family, it’s these highway-class machines that are commonly bringing traffic to a standstill. I’m not a huge fan lot of one-lane highways, but they do serve as a reminder that work is required and on a large scale.

Peter Yengst is optimistic about USA's future prospects and roadbuilding revival

Top players in the North American paver market include Caterpillar, LeeBoy, Volvo and Weiler, which collectively annually represent approximately 75% total machine sales. Smaller suppliers – like Bomag, Carlson, Dynapac, Mauldin, Roadtec Vögele and Salsco – make up the remaining 25%.

Today’s commercial class pavers account for just over half (52%) of North American annual sales, which is down from the years prior to the housing crisis when sales exceeded 60% of total paver sales.

The residential expansion and record housing starts back then translated to more neighborhood streets, parking lots and scenic trails. Sales dipped abruptly following the economic drop, which led up to the collapse.

There is currently a single-family home deficit estimated to be in the neighborhood of four million units, according to last month’s analysis from Virginia-based public government-sponsored enterprise The Federal Home Loan Mortgage Corporation. Therefore, it might be safe to expect commercial pavers to start a resurgence as this demand is met in the years ahead.

The lion’s share of paving projects since the housing downturn has involved road repair and maintenance requiring highway class models. With more funds going towards road and highway projects via an Infrastructure Bill, there is little doubt that the highway class paver market will also benefit greatly.

The market actually held its ground last year and grew 1% over 2019. We are anticipating more growth of around 5% to 10% this year, even before an infrastructure plan is set. Additional growth will come if and when a Bill becomes reality, and we are hoping this is the big year to make that happen.

Trendlines is a column devoted to the off-highway equipment markets, which appears each month in Diesel Progress, written by Peter Yengst - president of Connecticut-based market research and consultancy Yengst Associates.

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