April 2006

Specialty trade contractors primarily engaged in excavation work such as digging and loading are included in SIC code 1794:   Excavation Work. Contractors in this business may also perform incidental concrete work. According to Dun & Bradstreet (D&B), an estimated 38,154 establishments operate in SIC code 1794 in the U.S., with total annual sales of $25,133.60 million and average sales of $0.7 million (if multiple branch offices exist, each branch office is considered an independent establishment).   The number of people employed in this industry totals 206,715 , with an average of five employees per establishment.

Excavation contractors and their employees are considered specialty trade contractors, according to the Bureau of Labor Statistics' Occupational Outlook Handbook 2006-2007. According to the OOH , excavating machine operators --numbering about 86,000 in 2004 (an increase from   80,000 in 2002) are part of the overall material movers¨ occupational category.   About 79 percent of all material movers work in manufacturing, transportation, wholesale/retail trade, and temporary/contract employment industries; many others also work in construction and mining. Most material movers are employed by contractor companies rather than being self-employed.

For those excavation firms that serve the transportation construction market, the American Road & Transportation Builders Association (ARTBA) has positive news.   As of April 2006, the total value of contracts awarded to date are up over $1 billion over 2005, and the number of contracts awarded in the first three months of 2006 are also up over 2005.

According to Integra Information, industry-wide revenues for SIC 1794 increased by an average annual rate of 5.64 percent between 2000 and 2004 (see Table 1 ).  

Table 1:   Industry Revenue Growth: SIC 1794 Excavation work

Year	Historical Growth
2000	6.70%
2001	7.30%
2002	1.50%
2003	5.50%
2004	7.20%

Source:   Integra Information

A number of changes in the excavation industry are helping excavation contractors improve their impact on the environment and their productivity. These changes include:

Erosion control -- Gilbert Garrett of Arkansas-based Garrett Excavating reports that erosion control is playing an increasingly important role at excavation sites.   Successful erosion control requires specialized tools and training, but the contractor is proud of how negative effects on the land are minimized.

GPS technology -- GPS technology is increasingly used to determine accurate angles of grading and allow in-house staking.   According to Equipment Today magazine, GPS technology compresses time schedules, increases productivity and cuts production costs.

Nationwide dialing code --   The FCC has designated 811 as the nationwide toll-free number for contractors to call before conducting excavation activities.   The number replaces the array of numbers used across the nation to connect to communication systems operated by underground utility operators and state and local governments. Contractors associations expect the move will enhance damage prevention and safety.

On-the-job safety remains one of the most pressing issues facing construction specialty trade contractors, especially excavation and trenching contractors.   Builder magazine reports that, as home building has taken off in a redhot market,¨ so have trench and foundation accidents, many of which have led to fatalities.   Since 1985, OSHA has had a national emphasis program¨ targeting trench and excavation work; the agency can inspect an open excavation site at any time.   OSHA fines companies that violate safety rules, with fines sometimes in the $100's of thousands - often based on the company's history of citations and/or injuries or fatalities.  

In most cases, builders don't know what kind of losses their trade contractors have in the field, but that is changing for some companies; as a result, they're saving lives and money.   For example, Colorado-based Village Homes now requires all its contract workers, including supervisors, to receive 10 hours of   OSHA safety training; in addition, there are regular scheduled and unscheduled audits, fines for violations,   rewards for compliance, and regular safety talks.   Workers' compensation loss ratios for Village Homes have dropped to 25 percent in 2004, down from 79.5 percent in 2002.

U.S. Construction Trends

According to ARTBA, the cost of materials used for highway and street construction over the past two years increased by 22 percent. Construction costs are going up much faster than highway construction budgets,¡¨ said Alison Premo Black, the ARTBA research economist who conducted the analysis. Last year, Congress enacted a new highway bill that increases federal funding for highways about 4.5 percent per year. This is only a fraction of the recent rise in construction costs. State governments will need additional financial resources to move forward on transportation projects that could improve road safety and reduce traffic congestion.¨

The following trends in construction, provided by construction economist James Haughey, will most likely affect excavation constractors:  

• Water and sewer-- spending for has surged 20 percent since September 2004 and is likely sustainable.   Water project spending will increase more quickly than for sewer projects.  

• Commercial--   spending has had its peak growth in the current expansion cycle.   Warehouses, restaurants and upscale retail will be the fastest-growing sectors in 2005-06; food and drug stores and big-box discounters will be the slowest-growing.

• Housing starts - The current pace is expected to slip in 2006, as large builders are reducing their planned starts and real estate brokers report a sharp rise in homes available for sale.   Starts will gradually slip to 1.835 million by early 2007.

Table 2:   Construction Spending Forecast (% Change from Year Ago)

Sector	2005 (f)	2006(f)	2007 (f)
Total Construction	8.7	6.4	6.8
Heavy Construction	10.0	6.3	9.0
Highway/Bridge/Tunnel	10.0	6.3	9.0
Water/Sewer	12.9	13.5	10.7
Commercial Construction	4.8	4.7	5.9
Housing Starts	5.9	-7.6	-2.9

Source:   Construction Equipment

U.S. Transportation Construction

Most excavation contractors are affected by the transportation construction industry.   To the relief of many, in late summer of 2005, Congress finally approved a new four-year bill - the Safe, Accountable, Flexible and Efficient Transportation Equity Act XA Legacy for Users¨ (SAFETEA-LU) - guaranteeing $286.5 billion to fund federal highway, transit, and safety programs through fiscal year 2009.   While the budget is a 30 percent increase over the expired TEA-21 program, inflation has eroded it during the long delay to approval.   The highway industry had hoped to obtain $350 billion.  

Transportation facility construction spending has been stuck at a $26-28 billion annual pace for over four years, says James Haughey. This represented a steady volume of work until materials prices rose sharply in early 2004.   Inflation-adjusted volume has fallen 3-4 percent since then.   Recovery in this market is expected to begin in late 2005 as more federal funds are released, states begin to catch up on delayed projects, and private funds for capacity additions are increased to add capacity.   However, Katrina rebuilding may divert some federal money away from other heavy projects.

While the renewal of the federal highway funding plan is boosting highway construction spending,   planning and bidding time delays will prevent any noticeable pickup until 2006, says Haughey.   Highway, bridge and tunnel construction spending is forecast to rise 10 percent in 2005 and 6.3 percent in 2006.

Outlook

The outlook for excavating contractors appears bright, thanks to a new transportation bill and projected spending for heavy construction and infrastructure projects.   However, overall industry revenue growth will likely be dampened by significant cost increases. The OOH forecasts that job openings in material moving occupations will be numerous due to high turnover, but employment will increase more slowly than average for all occupations through 2014. Key factors in employment growth will be an expanding economy and increased spending on the nation's transportation infrastructure.  

The National Association of Home Builders' (NAHB) Chief Economist David Seiders remarks: As expected, the housing market appears to be coming off the recent record pace of home sales.¨ Single-family home builders' confidence is decreasing from a summer peak, although confidence is still considered positive. Our surveys indicate that three out of every four builders are experiencing some buyer resistance to current home prices, and many are offering certain concessions to buyers in order to help maintain sales volume.¨ NAHB's forecast continues to anticipate an orderly cooling down process for single-family sales and production in 2006,¨ says Seiders.

According to Integra Information, average annual revenues are expected to grow by a more modest 2.40 percent between 2005 and 2009 (see Table 3 ).  

Table 3: Industry Revenue Growth: SIC 1794 Excavation work

Year	Forecasted Growth
2005	1.40%
2006	2.50%
2007	5.20%
2008	0.10%
2009	2.80%

Source:   Integra Information

Industry Reports:   SIC 1794.¨   Dun & Bradstreet Sales and Marketing Solutions.   Accessed April 25, 2006.   Internet:   http://tinyurl.com/9wup8

Material Moving Occupations.¨   Occupational Outlook Handbook, 2006-2007 Edition .   Bureau of Labor Statistics, U.S. Department of Labor. Internet: www.bls.gov/oco/ocos243.htm

Material Moving Occupations¨   Occupational Outlook Handbook, 2004-2005 Edition .   Bureau of Labor Statistics, U.S. Department of Labor.   Last modified May 18, 2004.   Internet: www.bls.gov.

Monthly U.S. Transportation Construction Market Report.¨   American Road & Transportation Builders Association.   April 2006.   Internet:   http://www.artba.org/economics_research/TCMIR/mustcmr/monthly_ustcm_reports.htm

¡§Industry Growth Outlook Report: SIC 1794: Construction ¡V Excavation work.¡¨   Integra Information.   Accessed December 8, 2005.   Internet: http://www.integrainfo.com.

Thatcher, Jeff.   Attachments Bolster Productivity.¨   Construction News .   March 7, 2005, p. 4.

Bennink, Curt.   GPS Streamlines Earthmoving Projects.¨   Equipment Today Magazine.   August 2005, p. 10.

Call 811 Before You Dig.¨   Pacific Builder and Engineer .   May 2, 2005, p. 16.

Cushman, Ted.   Deadly Hazard.¨   Builder .   July 2005, p. 110.

Curry, Pat.   Cutting Injuries, Cutting Costs.¨   Builder .   July 2005, p. 128.

Highway Construction Material Costs Skyrocket 22% In Past 2 Years.¨ American Road & Transportation Builders Association. January 31, 2006. Internet:   www.artba.org/news/press_releases/2006/01-31-06.htm

Haughey, James.   "Economic Status & Forecast.¨ Construction Equipment .   November 15, 2005.   Internet:   www.constructionequipment.com.

Ibid.

SAFETEA-LU.¨   Rocky Mountain Construction .   September 12, 2005, p. 12.

Haughey, James.   Economic Status & Forecast.¨ Construction Equipment .   November 15, 2005.   Internet:   www.constructionequipment.com.

Ibid .

Ibid .

  Material Moving Occupations.¨   Occupational Outlook Handbook, 2006-2007 Edition.   Bureau of Labor Statistics, U.S. Department of Labor.   Internet: www.bls.gov/oco/ocos243.htm

Builder Sentiment Cools Further In December.¨ National Association of Home Builders.   Press Release.   December 19, 2005.   Internet:   http://www.nahb.org/news_details.aspx?newsID=1649.

Industry Growth Outlook Report: SIC 1794: Construction, Excavation work.¨   Integra Information.   Accessed December 8, 2005.   Internet: http://www.integrainfo.com.