Economist: Cautious optimism still rings true in 2016

FMI’s George Reddin Photo: George Reddin

Aggregate producers have been cautiously optimistic about growth these last few years, ever since the Great Recession took its toll on their businesses.

Cautious optimism is still a fitting approach according to George Reddin, a managing director of FMI Capital Advisors Inc. who also serves as Pit & Quarry‘s economics columnist. The cyclical nature of recessions is one key reason for cautious optimism in 2016 and 2017, he says.

“We haven’t had a recession since the Great Recession, and they happen every seven to nine years,” says Reddin, who gave a presentation at the Pit & Quarry Roundtable & Conference in Fort Lauderdale, Fla. “We’re getting to that point again.”

Still, producers can point to a number of signs and developments and feel good about the next couple of years for their businesses, Reddin says. The recently passed FAST Act is one reason for optimism, he says, but producers shouldn’t expect the five-year, $305-billion highway bill to offer a return to the industry’s glory years, even though it includes a slight increase over MAP-21 spending levels.

Cautious optimism is especially appropriate for producers whose sales are largely tied to nonbuilding construction, according to Reddin.

“We think the growth in highway [construction] is going to be relatively low,” he says. “The highway sector is largely driven by the federal highway bills.”

Residential construction, on the other hand, is positioned for good growth – particularly with single-family housing.

“Our forecast has residential being the healthiest of them all,” Reddin says.

Reddin was encouraged to hear a number of producers share more bullish capital expenditure plans at the Pit & Quarry Roundtable & Conference.

“Because we have a highway bill now, suppliers say this is good news because people have a vision for five years to make some cap-ex planning,” he says. “Some producers were saying cap-ex got pushed off where [they] could only tackle the most important things.”

The industry’s recent mega deals are another reason for optimism, Reddin says. He cites the LafargeHolcim merger, Oldcastle Materials’ purchase of LafargeHolcim assets and Martin Marietta Materials’ acquisition of Texas Industries as positive signs.

“Producers sound cautious but optimistic,” Reddin says. “The market has some unknowns to it, like the stock market, the Middle East and oil. Cautious optimism is the way to go. I see big guys spending and buying and having vision beyond 2016, where these guys used to be focused internally for five or six years. So this is big change. They can’t grow fast enough organically and wait for the country to grow at its 2 percent a year. We believe they have to keep doing big- and medium-sized deals to keep growing.”

Editor’s note: Associate Editor Megan Wilkinson contributed to this report.