I am not an economist; I am just an investment banker trying to keep my finger on the pulse of our national and global economy. And I am as confused as ever on the outlook for the rest of this year and into 2007.
Certain economic indicators are so strong, that we see upward pressure on inflation. There is so much inflationary pressure that the Federal Reserve Board is puzzled over how to deal with the signals.
“The trick is to tame inflation without causing a recession.”
In the Goldilocks world of managing our economy, the Fed’s trick is to get it “just right”, which is hard to do. When Alan Greenspan initiated three different rounds of interest rate increases as Fed chairman, two of those rounds led to recessions. The current Fed challenge is to tame inflation, yet not tighten so much that it tips the economy to negative growth, or recession.
On the one hand, the slowdown of the housing market has been rather dramatic in some parts of the country. Home builder sentiment, a driver of new starts, has fallen below the 50% median for the first time in years. This, coupled with the highest mortgage rates in years, may lead to a housing recession that could ripple through the economy.
Cost of doing business
In addition to energy prices that have skyrocketed the last two years, many commodity prices have risen, with increases in cement and concrete being only a small portion of the inflationary pressure throughout the construction and building materials industries.
The Fed has to take the air out of this inflationary pressure, even at the cost of higher interest rates and its threat to the construction industry. Yes, concrete production and cement shipments for the first half of the year were both at record paces, due mostly to the public and commercial work that is replacing the slowing housing sector.
Most ready-mixed concrete producers exposed to the residential market have already tightened their belts or shifted their mix of jobs. But Fed policy, coupled with a foggy outlook for inflation, could trip up the rest of the industry as well. But if the Fed gets it “just right,” the prosperity of the last few years could be with us for a long time to come.
The William B. Allen Award
At its annual convention in March, the National Ready Mixed Concrete Association (NRMCA) awarded its first annual William B. Allen Award, created to honor an executive for his or her lifetime contribution to our industry. Its namesake is our founder and senior partner, Bill Allen. He was also its first recipient.
Bill has served our industry for 60 years, chaired every committee (then in existence) of the NRMCA between 1966 and 1981, and became its chairman 25 years ago. He is the oldest active former chairman still involved in the industry, including local, state, and national association activities, on a daily basis.
All of us at Allen-Villere Partners salute Bill for his incredible lifetime of achievement. We value his knowledge and leadership, and each day is a chance for us to share in his wisdom. Thanks, Bill, for all you have done for us and for our industry. The award is a richly deserved tribute to an industry giant.
Pierre Villere is President and Managing Partner of Allen-Villere Partners. Contact Pierre Villere at email@example.com or telephone 985-727-4310.
© 2006 Hanley Wood, LLC. All Rights Reserved. Republication or dissemination of “Boom or Bust: Prosperity or Recession?” (The Concrete Producer, July 2006) is expressly prohibited without the written permission of Hanley Wood, LLC. Unauthorized use is prohibited. Allen-Villere is publishing “Boom or Bust: Prosperity or Recession?” under license from Hanley Wood, LLC.