Market Watch

NEW ARA FORECAST SHOWS EQUIPMENT RENTAL SEGMENT IS RECOVERING

Equipment rental revenue is expected to explode past its peak 2019 totals in 2022 according to the latest forecast released by the American Rental Association (ARA). This is the first quarter that ARA has segmented the updated forecast to include just the construction/industrial and general tool segments.

The updated forecast calls for equipment rental revenue to reach just under $47.7 billion in 2021, up 3.1 percent after a decline of 9.1 percent in 2020. However, the forecast calls for a 12 percent increase in construction/industrial rental revenue in 2022, taking the combined total for the two segments up to nearly $52.3 billion.

The growth rate is expected to be consistent at between 2 and 5 percent for the next three years according to the forecast with combined equipment rental revenues reaching $57.5 billion in 2025.

“The equipment rental segment is moving like the rest of the macro economy from relief to recovery. We are seeing a good uptick in business activity that is going to bring rental revenues back to pre-pandemic levels in 2022,” says John McClelland, PhD, ARA vice president for government affairs and chief economist. “The biggest concern going forward is the slump in nonresidential construction. However, a robust infrastructure bill from Congress would provide a significant long-term boost to that sector as well.” The ARA forecast calls for construction/industrial rental revenue to grow 3 percent in 2021 to nearly $34.5 billion and then jump 12 percent to $38.5 billion in 2022. In 2023, the segment is forecast to grow another 5 percent to nearly $40.3 billion, followed by growth of 2 percent in 2024 to $41.5 billion and 3 percent in 2025 to $42.5 billion. For general tool, the forecast is steady, calling for a revenue increase of 5 percent in 2021 to $13.2 billion and then growing 4 percent in 2022, and 3 percent during the next three years to surpass $15 billion in segment revenue in 2025. Revenue for both segments is expected to surpass pre-pandemic peak levels reached in 2019 by the end of 2022.

“While the overall U.S. economy is recovering strongly, the sectors that drive equipment rental are coming along more slowly. In particular, the nonresidential construction and infrastructure sectors are still contracting and may not see growth until the end of the year. However, leading indicators, such as the Architectural Billings Index have begun to show strong improvement,” says Scott Hazelton, director, economics and country risk, IHS Markit, the economic forecasting firm that partners with ARA to provide data and analysis for the ARA Rentalytics subscription service.

“Further stimulus via an expanded infrastructure bill could push growth higher. The key takeaway is that we expect equipment rental revenue to recover to 2019 levels in 2022. It is a multi-year event, with the strongest recovery expected in 2022,” he says.

To read more, visit forconstructionpros.com/21427900.

DODGE DATA: NONRESIDENTIAL CONSTRUCTION GAINS CAN’T OVERCOME COOLING IN SINGLE-FAMILY HOUSING STARTS

After showing surprising strength throughout much of the past year, single-family housing construction dropped 18% in April, pushing total construction starts down 2% to a seasonally adjusted annual rate of $853.5 billion, according to Dodge Data & Analytics. Gains in both nonresidential building and nonbuilding starts weren’t sufficient to offset single-family’s decline. Regionally, April’s starts rose in the Northeast and Midwest but fell in the West, South Central and South Atlantic regions. “The pullback in single-family construction starts was inevitable after showing exceptional strength over the past year,” stated Richard Branch, chief economist for Dodge Data & Analytics. “Higher material prices, supply shortages and a dearth of skilled construction labor were bound to catch up with housing and will ultimately limit the ability of this sector to show the same rate of expansion this year as it did last.” To read more, visit forconstructionpros.com/21440016.

STUDY SAYS CONSTRUCTION CONTRACTORS IN SHORT SUPPLY

The Institute of Supply Management (ISM) issues monthly economic reports on the manufacturing and services sectors based on surveys with executives in those industries.

It’s no surprise that construction is short on workers. What is likely a surprise to many, though, is how much of a problem the labor shortage is to the services sector. Nieves says that the biggest issue survey respondents mentioned in March was the lack of workers available for the construction industry, and as a secondary issue, a shortage of workers for restaurants and food service.

“Labor shortages in construction are an ongoing issue,” he says. “Employment numbers could be stronger if we had the labor pool.”

Commodities listed as in short supply are construction contractors at No. 1, followed by exam gloves, integrated circuits, general labor, construction labor, temporary labor, and needles and syringes.

One survey respondent in the construction industry said they are turning down work because of the shortage.

“Consistent with the past year, labor continues to be the biggest issue we are facing,” the survey respondent said. “Finding and retaining labor, skilled and unskilled, is highly challenging and frustrating. As the challenges continue, we are not accepting all the work that we could if we had the labor.”

To read more, visit forconstructionpros.com/21415681.

UNITED RENTALS RELEASES Q1 RESULTS, RENTAL REVENUE

United Rentals reported their financial results for the first quarter of 2021, including a total revenue of $2.057 billion and rental revenue1 of $1.667 billion. The equipment rental revenue was $1.783 million in the first quarter of 2020, equaling a 6.5-percent decrease. However, the year-over-year change in rental revenue improved each month in the quarter, and March was positive year-over-year.

The general rentals segment had an 8.7 percent yearover-year decrease in rental revenue to $1.273 billion for the quarter, and the rental gross margin increased by 20 basis points to 32.3 percent. The rental revenue of the specialty rentals segment, or Trench, Power and Fluid Solutions, increased 1.3 percent year-over-year to $394 million for the quarter, and the rental gross margin increased by 50 basis points to 42.1 percent, mainly due to decreases in temporary labor and fleet repair costs. Matthew Flannery, CEO, United Rentals, said, “We were very pleased with our first quarter results and the strong start to our year, as our key end-markets continue to rebound from the challenges of 2020. Sentiment among our customers continues to improve, and we are well prepared to support them as we enter the busiest part of our season.”

He continued, “The recovery that we’ve seen since the middle of last year remains evident across our business, and virtually all indicators point to these trends continuing. As such, we are raising our full-year guidance to reflect our expectations for stronger growth in our core rental business and increased used equipment sales. Most importantly, we are leveraging our significant competitive advantages to add value for both our customers and our investors.”

In related statistics, the used equipment sales in the quarter increased 28 percent year-over-year, reflecting a strong used equipment market. Used equipment pricing rose for the second consecutive quarter, with used equipment proceeds in the quarter being 49 percent of original equipment cost (OEC), compared to 53 percent in the year-ago period.

Recently, United Rentals acquired Franklin Equipment, a rental company headquartered in Ohio. And in April, United agreed to acquire General Finance, a mobile storage rental specialist, with the acquisition expected to close during the second quarter. United has updated its full-year outlook, including the contribution from the acquisition of Franklin Equipment, but not including the impact of the pending acquisition of General Finance Corp. The previous expectation for total revenue in 2021 was in the range of $8.625 to $9.025 billion. Now the company is expecting revenue within the range of $9.05 billion to $9.45 billion.

To read more, visit forconstructionpros.com/21403772.

1 Rental revenue includes owned equipment rental revenue, re-rent revenue, and ancillary revenue.