A Look Back at 2013, and Ahead to 2014

I have been shamelessly bullish on the constr uction industry for some time now and little has changed my view of the future.

Interestingly, much of what I predicted for 2013 came true. I said at the time, “…the recovery is solidly at our doorstep. Remember, major segments of our economy have recovered strongly, such as automobile manufacturing, hotel occupancies, the restaurant business, and retail across the board, from luxury goods to mass merchants. Construction is lagging behind all the rest of these segments, and we strongly believe that the recovery ahead of us for our industry will be very robust.” From the depths of concrete production at 257.7 million cubic yards in 2009, I predicted the industry would produce well over 300 million cubic yards in 2013, an almost 50 million cubic yard improvement from the trough.

Well, we got close. The industry will finish 2013 at 300 million cubic yards, just short of our firm’s year-old projection of 315 million cubic yards. This shortfall was not due to slower demand, but rather to a wet and cold spring in much of the nation. But what is different today is we were looking at economic indicators that pointed to the recovery, such as the performance of the stock market, new unemployment claims that continued to fall, the Conference Board index, and other signs of life in the economy that would benefit construction.

A year later, the performance of the construction sector in 2013 is proof that things are improving. Some parts of the country saw increases in concrete volumes of 20% or more, and producers in many markets were equipment- and manpower-constrained. October’s construction data offered a surprise for what has been a long, multi-year era of penny-pinching governments. There was a surge in public spending that offset a cyclical decline in private building that month. Spending on construction increased at a seasonally adjusted annual rate of 0.8% in October from the month before, beating the 0.4% gain forecast by economists. The strength came from state and local governments, which fund most public construction, boosting spending at a 3.2% pace.

The federal government boosted outlays by 10.9% in October, the largest gain since January 2011. Through the first 10 months of 2013, private building is up 8.8% and single-family home building has increased nearly 30%.

Housing’s comeback

But even more telling is the momentum in housing continues, albeit in fits and starts as interest rate wobbles affect sales of completed homes. Housing permits surged in October to the highest level in more than five years, driven largely by solid demand for multifamily buildings such as apartments and condominiums. And prices continue to rise in most major U.S. cities.

But the biggest news is the annual run-rate for new housing has surpassed 1 million units. The number of building permits issued in October rose 6.2% from a month earlier to a seasonally adjusted annual rate of 1.034 million, the strongest pace since June 2008. Permits for multifamily units rose more than 15% in October, while single-family permits rose modestly and reversed some of their summer decline.

2013 ended about where we thought it would, and 2014 points to growing concrete production volumes.

Pierre Villere is president and managing partner of Allen-Villere Partners. Contact him at pvillere@allenvillere.com or telephone 985-727-4310. Visit www.allenvillere.com.