Report indicates that concrete producers will stay profitable for years to come.
Anyone who follows the economy knows that Gross Domestic Product, or “GDP”, is the measure of our nation’s total output of goods and services; a key metric that is often quoted is that the American Consumer represents 70% of GDP. That has to be pretty obvious: thousands of companies build products and offer services that we buy or consume in our daily lives, so understandably, the American Consumer is labeled as the single biggest engine that drives our entire economy.
But when we drill down to the state level, the granularity is very interesting. In looking at U.S. Bureau of Economic Analysis figures, we can measure which states are outperforming, and which are underperforming, in terms of their contribution to overall GDP, driven mostly by consumer spending. In addition, the granular reporting allows us to see which states are healthy, and which aren’t, within the subset of construction spending.
So it was with great interest that I read the findings in the most recent quarterly study, which reported that real gross domestic product increased in 48 states and the District of Columbia in the second quarter of 2017; the majority of the states, 44, and the District of Columbia posted an acceleration in its annualized rate from the first quarter of 2017 to the second quarter of 2017, while only six states recorded a slowdown in the growth from the previous quarter. As a result, nationwide growth in real GDP recorded a 3.1% increase in the second quarter, accelerating from its 1.2% rate in the first quarter of 2017, which is almost a tripling of the rate at which the economy is growing. This is a startling statistic that speaks volumes about the strength of the U.S. economy.
Across all the states and the District of Columbia, real GDP growth in the second quarter of 2017 ranged from an increase of 8.3% in North Dakota to a decline of 0.7% in Iowa; the top ten states included the ones you would expect, like Texas, Utah and Colorado, but included a couple that surprised me, like West Virginia and New Mexico.
But the subset of construction metrics did not fare so well, at least on the surface. The construction sector component of the GDP measures the amount of spending towards new construction, and includes residential and non-residential construction in the private sector, and state and federal at the public level. In drilling down further, we found that construction sector spending levels declined by 0.6% from the first quarter of 2017 to the second quarter of 2017. However, compared to a year ago, the sector is up by 0.6%.
To be fair, out of the 50 states and the District of Columbia, only 27 states recorded data in the construction sector. Across these 27 states, six states had an increase in the construction sector, while two states saw no change. However, 19 states saw a decline in this sector between the first and the second quarter of 2017. But compared to the second quarter of 2016, 11 states posted an increase in the construction sector in the second quarter of 2017, while 16 states posted a decline. The average growth across the 11 states was 4%, while the average decline in the 16 states was 3.7%. The explanation for this is often quoted as being the result of an extremely mild winter in the first quarter, which saw a great number of projects pulled forward that were slated for spring starts. Most construction economists are in agreement with this thinking, and none see a systemic slowdown in construction anytime in the next couple of years.
We will continue to monitor actual GDP contributions by state, and the underlying subset of construction activity, throughout 2018 and will report on variances from time to time. In the meantime, we remain bullish on the U.S. economy, and concrete producers have a great couple of years ahead of them.
About the Author
Pierre G. Villere has been a contributing editor for The Concrete Producer for over a decade, and serves as the President and Senior Managing Partner of Allen-Villere Partners, an investment banking firm with a national practice in the construction materials industry. He has a career spanning more than four decades, and volunteers his time to educating the industry through his regular articles and presentations. Contact Pierre via email.