Concrete producers should be cautiously optimistic about where the industry is headed.

There is not a single concrete producer I have spoken with who has complained that their business isn’t good. Except for the harsh and rainy weather conditions in most of the country during the first quarter, which has gotten the industry off to a slower-than-normal start, everyone is extremely bullish on the spring and summer months ahead. As a result, 2018 is shaping up to be the best year in the ready-mixed concrete industry since the boom times of 2005 to 2006.

But I get asked a question over and over again: how long will this last? It is hard to predict the timing of the next economic slowdown, so I thought I would share some interesting data that points to a robust construction economy for the foreseeable future, with no slowdown in sight.

The economy is humming; look at the most recent jobs report that issued a couple of weeks ago – 313,000, is far larger than expected. More importantly, there was an even better number within the report. For the first time in years, people began coming back into the workforce that had been out so long, they aren’t even counted as unemployed. Employment rose in construction, retail trade, professional and business services, manufacturing, financial activities, and mining.

And in a few days, we will mark the end of the first quarter of 2018, and see the effects of tax relief for America’s corporations for the first time. But more importantly, we will hear the forward-looking statements from the nation’s CEOs, and we expect those to be generally bullish on the overall economy. Take a look at some metrics that point to robust economic activity:

  • As mentioned above, employment is up, and many of the long term unemployed are coming back into the labor force for the first time in many years.
  • Manufacturing is making a comeback in the US, even though we were told those jobs are never coming back.
  • Taxes are down for corporations, small businesses, and working Americans.
  • As I reported earlier this month, wages are up slightly, but not too much yet to ignite inflation. Right now, it’s a Goldilocks scenario: not too hot, not too cold.
  • Consumers account for 70% of US Gross Domestic Product, or GDP. With more money in consumers’ pockets, expect more spending and higher GDP numbers.
  • We have been running at a GDP below 2% annually for many years, but current averages are 3%, a 50% increase, and expected to go higher in months to come

So what is the outlook for the remainder of this up-cycle? It is commonly said that happiness equals reality minus expectations. If expectations get too high, it’s tough to exceed them and we often end up disappointed, and sentiment falls. Conversely, if everyone is expecting the worst and things turn out to be not as bad, sentiment improves. Remember, more than anything else that drives our economy, the nation’s sentiment is self-fulfilling.

Coming into 2018, sentiment was high. But recent moves by Washington that could spark a trade war, a possible unseating of the Republican majority in the mid-term elections, and the big unknown of a future infrastructure bill are all cause for some concern. But the utter strength of the economic metrics across all parts of the measurement scale has created a momentum that is so powerful, the construction economy should remain strong for at least the next couple of years, and maybe well beyond.

 

Pierre Villere Pierre Villere

Pierre G. Villere serves as president and senior managing partner of Allen-Villere Partners, an investment banking firm with a national practice in the construction materials industry that specializes in mergers & acquisitions. He has a career spanning almost five decades, and volunteers his time to educating the industry as a regular columnist in publications and through presentations at numerous industry events. Contact Pierre via email at pvillere@allenvillere.com. Follow him on Twitter – @allenvillere.