Economic Trends That Signal a Strong Construction Economy Ahead

by Pierre G. Villere

I want to expand on my thinking in last month’s column, and start by dispelling what I am being asked about often these days: Will the construction economy stay strong? The answer is a resounding yes, and it will not experience a slowdown anytime soon. So there.

There are too many positive indicators that signal a strong construction economy, and as I have said before, the Infrastructure Investment and Jobs Act, also known as the “IIJA,” has stretched a long, strong safety net under our business to the tune of $1.2 trillion. And at press time, there were countless metrics pointing to great underlying strength that should ease a producer’s mind about buying new trucks and loaders, or just investing in their business in anticipation of continued growth.

The Associated General Contractors released a report recently that summarized Bureau of Labor Statistics data, and stated that seasonally adjusted construction employment in April topped the February 2020 level in 32 states, and lagged in only 17 states and the District of Columbia. The BLS uses February 2020 as the watermark for employment, as it was the month in which employment peaked nationally before plunging during widespread shutdowns in April and May 2020. And the general employment growth and unemployment rates across the entire economy, not just construction, continue to signal a bullish market: Employers added 390,000 jobs in May, another robust increase on top of the gain of 436,000 in April. The unemployment rate held at 3.6 percent in May, close to the half-century low level it reached in 2020 before the Covid-19 pandemic sent the economy into a deep but short recession. About 330,000 people joined the labor force, with the participation rate just below pre-pandemic levels.

I continue to bristle at what I call the “headline attacks” that scare people into thinking things are headed south. For example, I was annoyed to hear the headline blasted across the popular business press from Jamie Dimon, the storied chairman and CEO of JP Morgan Chase, who warned investors last month to prepare for an economic “hurricane” as the economy struggles against an unprecedented combination of challenges, including tightening monetary policy and Russia’s invasion of Ukraine. But if you drill down deep into his comments, he backpedals from the headline of a hurricane, and admits it might be a minor one. And he also acknowledges the “sunny skies” right now, with his own admission that the Federal Reserve is masterfully managing the threat of inflation. Further into his speech, he cited the strength of the consumer, rising wages, and plentiful jobs as the “bright clouds” in the economy. I have been saying the same thing for months now.

Other headlines feed the Chicken Little syndrome, as I like to call it. For example, the AGC report stated that in a sign that demand for warehouse construction may cool, Amazon is seeking to sublease a minimum of 10 million square feet of distribution center space and is also exploring options to end or renegotiate leases with outside warehouse owners. While Amazon is still determining exactly how much space to vacate, the amount is expected to be at least 10 million square feet. First, that is a drop in the bucket in terms of overall warehouse space in America, and is simply a reflection of Amazon’s business returning to normal after the pandemic lockdowns that accelerated their growth in home-delivered goods, and as consumers revert to their normal spending patterns. Several Wall Street analysts view Amazon’s warehouse space needs as growing to record levels over the next five years, despite the return to traditional bricks-and-mortar shopping as consumers resume their traditional buying patterns.

To summarize, take some of these headline attacks with a big grain of salt. The construction economy will remain strong for at least the next couple of years, and producers should plan to invest, and re-invest, in their businesses accordingly.

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.