by Pierre G. Villere
A couple of months ago, I wrote about my most recent crystal ball prognostications, and expected the decade of the 2020s to resemble the 1920s, a period of unprecedented growth and prosperity coming out of World War I and the Spanish Flu pandemic of 1918-19. I dubbed this economic expectation for the 2020s the “Roaring Twenties II,” and now a new Congressional Budget Office (CBO) report supports my theory, indicating we will boomerang back to pre-pandemic levels—starting this year.
While the loss of life in North America and globally during the Covid-19 crisis has been a tragedy of epic proportions, it doesn’t come close to comparing to the Spanish Flu pandemic, when an estimated 50 million–100 million people perished from the disease. With a global population estimated at 1.8 billion people in 1919, that would be a death rate of more than 5 percent of the population at the time. To draw a comparison, if we lost the same percentage of our current global population of 7.8 billion people to Covid-19, we would be staring at a death toll of 390 million. Fortunately, the tragedy of it all aside, our death rate has been less than 1/20th of that amount, due to modern medicine, treatments, and the promising rollout of the various vaccines developed in record time.
The construction industry, and ready mixed and manufactured concrete production in particular, require the backdrop of a robust economy to prosper and grow output. In 2020, a slowdown in non-residential construction was offset by a rapid growth in new home building nationwide, as buyers sought to escape to the suburbs, closing on homes at unprecedented levels due to affordability driven by ultra-low interest rates. As a result, the year ended flat in terms of revenues and production statistics compared to 2019; that mix of business is expected to occur again in 2021, with more new housing construction leading the way. But not surprisingly to me, the CBO report says economic activity will return to pre-pandemic levels by mid-year, a level of recovery even I did not expect.
The report expects gross domestic product, the broadest measure of economic output, to return to its pre-pandemic level by June or July, thanks in part to a surge of relief spending Congress authorized in 2020, including aid for households and businesses. Gross domestic product is expected to grow 3.7 percent in the fourth quarter of 2021, compared with a year earlier, and to expand 2.4 percent in 2022. Growth is likely to average 2.6 percent a year through 2025, the CBO projects. The agency figures that a roughly $900 billion relief bill enacted in December will add about 1.5 percent to the level of GDP this year and next.
The forecast envisions a stronger economy this year than the CBO expected in July 2020, in large part because the downturn was not as severe as expected and because the first stage of the recovery took place sooner and was stronger than expected. The report also estimates the jobless rate will fall to 5.3 percent by the end of this year from 6.8 percent at the end of 2020.
Separately, a similar report by the Brookings Institute sees the Biden plan, approved in its entirety, will boost GDP by year-end to the level economists expected before the pandemic, and temporarily push the jobless rate down to 3.2 percent by the end of 2021 from 6.7 percent in December 2020. It also states that cumulative GDP over the next decade will be roughly the same as expected before the pandemic.
By the time this appears, Congressional Republicans will have reached a compromise with the new Biden Administration on the final Covid relief bill, and those funds will already be flowing to their directed purpose. Any additional stimulus bodes well for the broad construction industry in 2021.
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 [email protected]. Follow him on Twitter – @allenvillere.