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THE WEEK AHEAD – FROM IHS GLOBAL INSIGHT

As predicted by IHS Global Insight, real GDP increased at a 2.3% annual rate in the second quarter. Consumer spending, up 2.9%, led the way with gains spread broadly across durable and nondurable goods and services. The first quarter of 2015 was revised up to 0.6% growth. These numbers are consistent with the Federal Reserve’s moderately upbeat assessment of the economy and the high probability of a September increase in the federal funds rate. Average real GDP growth for the 2011‒14 period was lowered from 2.3% to 2.0%. A drop in 2013 growth from 2.2% to 1.5% accounted for most of the revision. The newly reported weakness was concentrated in consumer spending and state and local government purchases.

Durable goods orders climbed 3.4%, driven by a surge in aircraft orders at the Paris Air Show. Core capital orders rose 0.9%; two-thirds of the increase was in the machinery category. Despite July’s increase, orders and shipments for core capital goods have dropped three straight quarters.

The Employment Cost Index showed the slowest rate of increase on record, at 0.2%. This figure is a bit of a shock, since it is not what is expected in a gradually tightening labor market. The central question is whether this sharp decline in wages and salaries will trigger alarm bells at the Fed, causing a delay for the first rate hike.

The Conference Board’s Consumer Confidence Index fell 8.9 points in July, to 90.9, the lowest reading since September of last year. Volatility in equity markets and financial issues in China and Europe were behind the decline. The University of Michigan’s Consumer Sentiment Index fell 3.0 points, to 93.1, the lowest level since November 2014.

The Federal Open Market Committee did not change its target federal funds rate at its July 29 meeting. The committee’s assessment of the economy was more upbeat. Notably missing, however, was a clear signal of the intent to raise the funds rate target at the next meeting in September.

Next week brings the employment report. Total payroll gains should tally 200,000 for July, while the unemployment rate rises to 5.4%. Both personal consumption and personal income likely rose 0.2% in June. The trade deficit likely widened, to $44.0 billion, as goods exports fell modestly while goods imports increased. Construction spending likely increased by 1.0%, with gains in both private and public construction spending.

Monday, 3 Aug. – Personal income and consumption (Jun.)

Personal consumption, nominal

IHS Global Insight: 0.2%                   Consensus: 0.2%                     Last actual: 0.9% (May)

Personal consumption, real

IHS Global Insight: -0.1%                                                                  Last actual: 0.6% (May)

Personal income

IHS Global Insight: 0.2%                   Consensus: 0.4%                     Last actual: 0.5% (May)

Core PCE inflation

IHS Global Insight: 0.1%                   Consensus: 0.2%                     Last actual: 0.1% (May)

Implications

Consumer spending likely increased 0.2% in June. Personal income is expected to have grown at the same pace as spending. Inflation-adjusted spending is likely to have fallen by 0.1%. Core PCE prices probably rose by 0.1%, keeping the core year-on-year inflation rate at 1.2%.

Monday, 3 Aug. – Construction spending (Jun.)

Construction put-in-place

IHS Global Insight: 1.0%                   Consensus: 0.7%                     Last actual: 0.8% (May)

Construction excl. residential improvements

IHS Global Insight: 1.0%                                                                   Last actual: 0.8% (May)

Implications

Construction spending is expected to have risen 1.0% in June on increases in both private and public construction.

Monday, 3 Aug. – ISM Manufacturing Index (Jul.)

IHS Global Insight: 53.0                    Consensus: 53.5                      Last actual: 53.5 (Jun.)

Implications

The ISM Index for manufacturing should cool by one-half a point. As the newly revised industrial production readings confirm, the decline in net exports is holding back goods manufacturing.

Wednesday, 5 Aug. – Trade balance (Jun.)

IHS Global Insight: -$44.0 billion                    Consensus: -$42.50 billion                  Last actual: -$41.9 billion (May)

Implications

The trade balance is expected to widen on a small drop in goods exports and an increase in goods imports.

Friday, 7 Aug. – Employment report (Jul.)

Nonfarm payrolls, change

IHS Global Insight: 200,000              Consensus: 225,000                Last actual: 223,000 (Jun.)

Unemployment rate

IHS Global Insight: 5.4%                   Consensus: 5.3%                     Last actual: 5.3% (Jun.)

Average hourly earnings

IHS Global Insight: 0.2%                   Consensus: 0.2%                     Last actual: 0.0% (Jun.)

Implications

The US economy is expected to add 200,000 jobs in July. Gains will likely be concentrated in healthcare, food services, and professional and business services. The unemployment rate should drift higher as the labor force increases.

by Patrick Newport and Manoo Sabety-Javid

ABC Reports: Nonresidential Construction Spending Retains Momentum

CEU2“Today’s release represents the largest year-over-year growth during a calendar year’s first six months since the Census Bureau began tracking construction spending in 2002.” —ABC Chief Economist Anirban Basu.

Spending 8.3.15Nonresidential construction spending was unchanged on a month-over-month basis in June, but is up 11.5 percent on a year-over-year basis, according to a report released Aug. 3 by the U.S. Census Bureau. Nonresidential construction spending totaled $686.9 billion on a seasonally adjusted, annualized basis for the month and increased 9.8 percent during the year’s first half.

“Today’s release represents the largest year-over-year growth during a calendar year’s first six months since the Census Bureau began tracking construction spending in 2002 and serves as further proof of the recovery for nonresidential construction,” said Associated Builders and Contractors Chief Economist Anirban Basu. “Despite the lack of growth on a monthly basis in June, along with the overall economy’s lukewarm growth, most contractors are markedly busier than they were a year ago. May’s nonresidential construction figure was revised upward by 2.6 percent and April’s by 1.4 percent; therefore, it is conceivable that June’s estimate will eventually be revised higher as well.

“Exactly half of the 16 nonresidential construction sectors experienced growth in June,” said Basu. “On a yearly basis, 15 of those 16 sectors have expanded. However, the one sector that failed to grow during the past year, power, happens to be the largest. Had power simply remained unchanged during hat time period—it’s down 16.5 percent largely because of the fall in oil prices—nonresidential construction spending would currently stand at its highest level ever.”

Eight of 16 nonresidential construction sectors experienced spending increases in June on a monthly basis:

  • Lodging-related construction spending was up 3.9 percent on a monthly basis and 42.2 percent on a year-over-year basis.
  • Spending in the water supply category expanded 12.2 percent from May and is up 12 percent on an annual basis.
  • Highway and street-related construction spending expanded 1.3 percent in June and is up 14.8 percent compared to the same time last year.
  • Amusement and recreation-related construction spending was up 10.2 percent on a monthly basis and is up 39.2 percent from the same time last year.
  • Communication-related construction spending fell 6.8 percent for the month, but is up 13.4 percent compared to June 2014.
  • Construction spending in the transportation category grew 2.3 percent on a monthly basis and has expanded 9.6 percent on an annual basis.
  • Sewage and waste disposal-related construction spending increased 1.6 percent for the month and has expanded 5.3 percent on a 12-month basis.
  • Public safety-related construction spending grew 2.5 percent on a monthly basis, but is down 3.1 percent on a year-over-year basis.

Spending in eight nonresidential construction subsectors fell in June on a monthly basis:

  • Education-related construction spending fell 0.2 percent for the month, but is up 2.1 percent on a year-over-year basis.
  • Power-related construction spending fell 0.9 percent for the month and has declined 16.5 percent from June 2014, the steepest decline for any nonresidential category.
  • Commercial construction spending fell 4.3 percent in June, but is up 7.6 percent on a year-over-year basis.
  • Health care-related construction spending fell 0.9 percent for the month, but is up 6.3 percent on a year-over-year basis.
  • Manufacturing-related construction spending fell 0.8 percent in June, but is up 62.1 percent compared to June 2014.
  • Office-related construction spending fell 1.1 percent in June, but is up 24.4 percent from the same time one year ago.
  • Conservation and development-related construction spending fell 5.8 percent for the month, but is up 6.5 percent on a yearly basis.
  • Religious spending fell 6.2 percent for the month, but is up 5 percent from the same time last year.

To view the previous spending report, click here.

Caterpillar Announces New Strategy for Vocational Truck Product Family

Company to Bring Vocational Truck Production to a U.S. Caterpillar Facil

Caterpillar Inc. recently announced it will begin independently designing and manufacturing its vocational truck product family at its plant in Victoria, Texas. The plant, which opened in 2012, currently produces hydraulic excavators.

“The on-highway vocational truck product family is important to our product line; customers like our trucks and want to include them in their fleets in a variety of heavy duty applications such as dump trucks, mixers, haulers or one of the other configurations we offer ,” said Chris Chadwick, Caterpillar’s director of the Global On-Highway Truck Group. “To continue to provide the best solution for our customers, we will bring the design and manufacturing of this product into Caterpillar, and the production specifically to Victoria. Our updated strategy reaffirms our commitment to grow and develop our presence in the vocational truck industry moving forward.”

Caterpillar launched its first vocational truck, the CT660, in the North American market in 2011. Two more models have since been added to the lineup, the CT680 and CT681. To date, Caterpillar has worked with Navistar for the products’ design and build, which are currently manufactured in Escobedo, Mexico.

“We appreciate the collaboration we have had with Navistar,” Chadwick said. “As we look to future launches of new truck models, this updated strategy will better position us to help provide our customers with the best products and services for this market. Caterpillar continues to drive the design phase of all models, both current and planned.

Before launching the product, we spent hundreds of hours on the road with customers, asking them to describe the ideal truck. We know what they want and need – from functionality of the truck itself to comfort in the cab. We plan to meet and exceed those expectations as we grow this product offering to fulfill our customers’ needs.”

The transition process will begin immediately, with production expected to begin in the first half of next year. Caterpillar Victoria will continue to produce excavators, and the addition of the vocational truck production is expected to add around 200 new jobs at the facility.

“Caterpillar Victoria is proud to be a part of this opportunity,” commented Ed O’Neil, general manager for Operations for the Excavation Division. “The Victoria facility was selected because of our team’s proven record of building high-quality Cat® products, our commitment to safety, our successful implementation of the Caterpillar Production System and Lean manufacturing. In addition, support from the community and its excellent skilled workforce, as well as the proximity to suppliers, also contributed to the sourcing decision.”

Caterpillar dealers will continue to sell and support Cat vocational trucks.

Vocational Trucks Brief Specs

CT681 CT660 CT680
Engine Cat® CT13 Engine Cat® CT13 Engine Cat® CT13 Engine
Horsepower @ 1700 rpm 365 – 430 hp 365 – 475 hp 410-475 hp
Engine Type Diesel, 4-Cycle Diesel, 4-Cycle Diesel, 4-Cycle
Configuration Inline 6-Cylinder Inline 6-Cylinder Inline 6-Cylinder
Displacement 758.0 in3 758.0 in3 758.0 in3
Aspiration Turbo/Intercooler/Aftercooler Turbo/Intercooler/Aftercooler Turbo/Intercooler/Aftercooler
Peak Torque @ 1000 rpm 1550 lb-ft 1250 – 1700 lb-ft 1700 lb-ft
Transmission Cat CX31® Automatic Transmission Cat CX31® Automatic Transmission Cat® CX31 Automatic Transmission
Speeds 6 forward/1 reverse 6 forward/1 reverse 6 forward/1 reverse
Maximum Input Speed: 2500 rpm 2500 rpm 2500 rpm
Power Take-Off 2 side & Hi out put rear 2 side & Hi out put rear 2 side & Hi out put rear

Cat CT680    

A natural extension of the Cat® product line, the Cat CT680 Vocational Truck delivers all the power, performance and productivity you expect from Caterpillar. This Class 8 set-forward axle model—ideal for hauling heavy loads—features a spacious and ergonomic cab, industrial styling, vocational-specific engine and transmission options, and bumper-to-bumper support across North America.

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The CT680’s set-forward axle, rugged design and industrial styling make it ideal for hauling heavy loads or working in extreme conditions. Aluminum alloy cab construction reduces overall weight and extends cab life.

The CT680’s wide, spacious cab is filled with ergonomic details to reduce fatigue and thoughtful features to enhance driver comfort, all shift long.

Cat’s ergonomically designed dashboard and center stack layout give drivers complete command and control. All controls, levers, switches and gauges are positioned to maximize safety and minimize fatigue, so drivers can stay focused on the job at hand.

The CT680’s tuned cab air suspension system, premium grade sound insulation kit, and durable routing and clipping wire system dramatically reduce vibration and cab noise.

Under the hood, the CT680 is powered by a Cat CT Series Vocational Truck Engine with ratings specific to vocational truck applications and a horsepower/torque combination to tackle the toughest jobs.

Performance-matched with your engine to deliver rugged durability, smooth shifting and optimum power, the Cat CX31 Automatic Transmission will help you maximize your CT680’s uptime, fuel economy and productivity. (Other transmission options are available.)

For more information: http://www.cat.com/en_US/products/new/equipment/on-highway-trucks/on-highway-trucks/1000004244.html

 Cat CT681

A natural extension of the Cat® product line, the Cat CT681 Vocational Truck delivers all the power, performance and productivity you expect from Caterpillar. This Class 8 set-forward axle model—ideal for hauling heavy loads—features a spacious and ergonomic cab, industrial styling, vocational-specific engine and transmission options, and bumper-to-bumper support across North America.

Cat CT681 On Highway Truck - C10128995The CT681’s set-forward axle, rugged design and industrial styling make it ideal for hauling heavy loads or working in extreme conditions. Aluminum alloy cab construction reduces overall weight for maximum payloads.

Cat’s integral Front Frame Extension (FFE) option makes it easy to mount attachments like snow plows, hose reels, winches and hydraulic pumps. Mixer installation is simple thanks to vertical tie-in plates mounted behind the cab.

The CT681’s wide, spacious cab is filled with ergonomic details to reduce fatigue and thoughtful features to enhance driver comfort, all shift long.

The CT681’s ergonomically designed dashboard and center stack layout give drivers complete command and control. All controls, levers, switches and gauges are positioned to maximize safety and minimize fatigue, so drivers can stay focused on the job at hand.

Cat’s tuned cab air suspension system, premium grade sound insulation kit, and durable routing and clipping wire system dramatically reduce vibration and cab noise.

Under the hood, the CT681 is powered by a Cat CT Series Vocational Truck Engine with ratings specific to vocational truck applications and a horsepower/torque combination to tackle the toughest jobs.

Performance-matched with your engine to deliver rugged durability, smooth shifting and optimum power, the Cat CX31 Automatic Transmission will help you maximize your CT681’s uptime, fuel economy and productivity. (Other transmission options are available.)

Fore more information:

http://www.cat.com/en_US/products/new/equipment/on-highway-trucks/on-highway-trucks/18581765.html

Wells Fargo Reports: Private Sector Compensation Costs Slow Sharply in Q2

Wells_Fargo_Securities_logoCompensation costs slowed markedly in Q2, increasing just 0.2 percent. Weakness appears concentrated among incentive paid workers, but still may raise doubts among the FOMC as to the strength of wage growth.

Better than the Headline Indicates but Still Not Great

Employment costs rose far short of expectations in Q2, increasing just 0.2 percent. The closely watched wages & salaries component rose by the smallest amount since 1982, up only 0.2 percent. The slowdown was concentrated among sales occupations, which are more likely to receive incentive compensation. Ex-incentive paid workers, wage growth continues to show a modest upward trend.

Trend in Wage Growth Remains Disappointing

Compensation costs for government workers picked up in Q2, driven by both wages and benefits. In contrast, private sector benefits fell for the second time since the series began in 2001.

The slowdown in ECI wage growth, along with no clear pickup in the average hourly earnings series of the payroll report may lead the FOMC to reevaluate how much slack remains in the labor market and how fast inflation will return to target.

Private Sector Compensation Costs Slow Sharply in Q2 Private Sector Compensation Costs Slow Sharply in Q2 Private Sector Compensation Costs Slow Sharply in Q2 Private Sector Compensation Costs Slow Sharply in Q2