Our industry’s recovery will be very robust.
For only the second time in 15 years, I was unable to attend the World of Concrete this year. So here are some thoughts about our firm’s outlook I shared in a video which was presented at the show.
The construction industry, and construction materials in particular, have been late to join the recovery. We have trailed automobile manufacturing, hotel occupancies, the restaurant business, retail, and other segments of the economy. While construction has lagged, we strongly believe that our own industry’s recovery will be robust. Here’s why:
- The stock market performed exceptionally in the last half of 2012. The Dow Jones Industrial Average has added more than 2000 points since June, and almost 1500 points of that gain has come since the week after the election in November. And of course, on March 5, it hit its all-time high. Other indexes have fared similarly well.
- The number of U.S. workers filing new applications for jobless benefits has fallen to a five-year low, indicating a strengthening labor market. The level of jobless claims is at its lowest point since January 2008, near the start of the recession.
- New construction starts in December climbed 23 percent to a seasonally adjusted $530 billion. Substantial gains were reported for nonresidential building and nonbuilding construction; housing maintained the upward trend that has been present for much of the past year. For 2012, total construction starts grew 6 percent to $463.6 billion.
- December saw a reading of 112 for the Dodge Index. This is up from a revised 91 for November. Expect this construction indicator to rise monthly through all of 2013.
- But the biggest news was from John Paulson, the famous hedge fund manager who made billions betting against the U.S. mortgage market starting in 2007. Now, he is bullish on the economy and housing in particular. This is a significant reversal. Paulson believes the housing market had shown a “strong recovery,” with prices up and the number of homes for sale at a decade low. This will likely put pressure on builders to create new product, producing some of the “most positive change in housing since the Lehman crisis,” he said.
The road ahead
So what lies ahead for 2013 and beyond?
- From the depths of ready-mix production at 257.7 million cubic yards in 2009, we predict the industry will produce well more than 300 million yards in 2013, an almost 50 million yard improvement.
- Don’t be surprised to see shortages in ready-mix trucks and drivers, now that the industry has pared back its plant and rolling stock. The human resources challenges we saw in the middle of the last decade will return.
- Cement prices are increasing, significantly in some markets; this always bodes well for concrete production and margins.
- Household formations and population growth will accelerate, driving demand for housing and adding pressure on already low inventories and current low prices. This will drive collateral commercial construction, and coupled with healing state budgets, will further drive public and infrastructure work.
Pierre Villere is President and Managing Partner of Allen-Villere Partners. Contact Pierre Villere at email@example.com or telephone 985-727-4310.
© 2013 Hanley Wood, LLC. All Rights Reserved. Republication or dissemination of “What Lies Ahead” (The Concrete Producer, March/April 2013) is expressly prohibited without the written permission of Hanley Wood, LLC. Unauthorized use is prohibited. Allen-Villere is publishing “What Lies Ahead” under license from Hanley Wood.