Demand for New Factories Drives Growth in Construction Spending

“U.S. construction spending in March rose by an adjusted rate of 0.3% from February, according to the U.S. Census Bureau.”

Manufacturers of construction equipment, trucks, building supplies and industrial software are still ringing up sales, despite slowdowns in other parts of the U.S. economy.

A backlog of orders stemming from supply-chain bottlenecks during the pandemic and higher demand from new factories under construction have boosted manufacturing companies, helping offset the effects of rising interest rates and weakening U.S. economic growth.

“We feel good about the market conditions,” Chief Executive Jim Umpleby said late last month after the construction-equipment maker’s quarterly sales rose by 17% from the same period last year and profit increased by 26%.“ Our first-quarter results lead us to expect that 2023 will be even better than we previously anticipated.”

“U.S. construction spending in March rose by an adjusted rate of 0.3% from February, according to the U.S. Census Bureau.”

Private nonresidential-construction spending was up by an adjusted 1% from February, powered by a 4.6% increase in manufacturing-related construction, which accounts for about a quarter of nonresidential spending.

New factories are driving demand for construction materials, including steel, as well as the systems and equipment needed to operate the plants once completed. Strength in such construction projects has helped Texas-based Caterpillar and other manufacturers exceed expectations of investors and industry analysts, some who worry that economic turbulence could cut into sales or diminish profit guidance.

Caterpillar’s sales of machinery and engines from North America rose 32% in the first quarter of 2023 from the same period a year earlier, offsetting slumping sales in China and smaller growth rates in other overseas markets.

For North Carolina steelmaker Nucor continued robust sales of building joists, warehouse racks, overhead doors and other products made from the company’s steel boosted profits from its steel-products business by 42% from the 2022 first quarter last year to $971 million.

“Semiconductor-chip plants, electric-vehicle facilities—both the assembly and battery plants—are in our order backlogs and we’re quoting even more of them,” Chad Utermark, Nucor’s executive vice president for new markets and innovation, said during a late April conference call with analysts.

Factory-software and automation-gear supplier Rockwell Automation also is benefiting from the factory-building boom. The Milwaukee-based company reported a 26% increase in quarterly sales from a year earlier, and its operating margin rose by more than 5 percentage points to 21.3% from higher sales volumes and price increases.

Rockwell raised its profit guidance in anticipation of 13% to 17% growth in core sales this year. Mr. Moret said that as supply-chain disruptions ease and the availability of components improves, Rockwell can complete orders faster and increase its sales.

Companies’ supply-chain problems left customers to endure long waits for orders, or postpone purchases or projects. Manufacturing executives said that demand didn’t vanish and is now providing momentum for sales as the availability of parts improved in recent quarters.