U.S Economic Indicators and Stock Prices of Construction Equipment Manufacturers: A Statistical Relationship Analysis

Abstract

This paper investigates the relationships and interrelationships associated with the commonly accepted U.S. economic indicators and stock prices of major construction equipment manufacturers. The authors developed a three-step research methodology that comprised data collection, hypotheses development, and statistical analysis. Various U.S. economic indicators, i.e. Real Gross Domestic Product, Inflation Rate, Turner Construction Cost Index, price of Gold, and price of Crude Oil, were analyzed relative to the stock prices of U.S. construction equipment manufacturers, i.e. Caterpillar, Deere & Company, and Manitowoc. In general, relationships among the three construction equipment companies did not consistently parallel one another with respect to the various economic indicators. Perhaps one of the most telling findings was that no significant relationships were found between the stock prices of Caterpillar or Manitowoc and GDP or Construction Cost Index. However, there were significant relationships between the stock prices of Deere & Company, GDP, and the Construction Cost index. Equally as telling, Caterpillar stock price did not correlate with the U.S. unemployment rate. Also, it became obvious that the stock price of Caterpillar was clearly different than that of Deere & Company and Manitowoc. In addition, through close inspection of the nearly perfect correlation between GDP and the Construction Cost Index, it appears that the 2007 collapse of the U.S. construction industry, and consequently the U.S. economy, could have been predicted through a casual investigation of construction material and labor costs. This research opens horizons for abandoning the notion of studying the construction industry solely using residential construction, i.e. housing market, realizing that the construction sector involves other significant decision making variables.