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What to watch as the rest of 2022 unfolds

By |  June 22, 2022
FMI Capital Advisors’ George Reddin delivered a construction materials market outlook June 8 at the Pit & Quarry Roundtable & Conference. The magazine hosted its annual event at Chateau Elan in Braselton, Georgia. Photo: P&Q Staff

FMI Capital Advisors’ George Reddin delivered a construction materials market outlook June 8 at the Pit & Quarry Roundtable & Conference. The magazine hosted its annual event at Chateau Elan in Braselton, Georgia. Photo: P&Q Staff

George Reddin delivers a market outlook for the construction materials industry at the Pit & Quarry Roundtable & Conference every year, with a variety of factors regularly shaping his view.

The good news at the moment, according to Reddin, is that the road ahead for construction materials producers looks pretty good. Still, the road is a bit rockier for producers now versus earlier this year.

“The national trends, quite frankly, don’t look as good as they did a quarter ago,” says Reddin, managing director at FMI Capital Advisors, who delivered an industry outlook June 8 at the Pit & Quarry Roundtable in Braselton, Georgia. “They still look good, but they looked really good a quarter ago.”

As an example, Reddin says industry stakeholders were very optimistic last November following passage of the $1.2 trillion Infrastructure Investment & Jobs Act (IIJA). Unfortunately, inflation soured the mood. 

Additionally, businesses may have to contend with a technical recession sooner than later.

“Three-quarters of the CEOs of Fortune 500 companies are saying: ‘Look, we’re going to have a technical recession,’” Reddin says. “Whenever we have inflation above 4 percent, which we have, and unemployment below 3 or 4 percent, which we’re at 3-point something, it’s a good predictor of a recession.”

Reddin, however, says construction materials producers have a number of reasons to remain optimistic about the months and years to come.

“The good news is that IIJA money is committed,” he says. “It’s not getting spent in 2022 due to a lot of reasons. Maybe one is that departments of transportation are constrained with labor – they can’t hire the engineers because the cost has gone [up] too fast. But we’re going to have five years of funding in four years.”

Also, industry merger and acquisition activity continues. And more runway might be ahead in the robust residential market.

“Residential is going to be the mystery to me,” Reddin says. “Is our theory on the wave of demand of first-[time] homebuyers going to get squashed with interest rates? Is the consumer going to get nervous if we technically are in recession? We’ll have to watch. But, right now, the residential market is still doing well. There are nine months of new homes supply inventory. That’s up significantly.”

Construction markets

1. Residential building. FMI, for one, forecasts residential building to jump 12 percent across the U.S. this year versus 2021. The firm expects a 5 percent jump in nonbuilding this year, as well as a 1 percent increase in nonresidential building.

In residential, Reddin expects first-time homebuyers to extend the market’s growth. 

“There’s a massive demand coming down the road for new homebuyers [or] first-time homebuyers in the millennials and the generation behind them,” he says. “It’s the biggest part of our population. They deferred that first home, [which was] different than other generations.”

Just think about the Baby Boomers and their approach to homebuying.

“We wanted the house fast, we wanted the two-car garage and the white picket fence – you name it,” Reddin says. “They (millennials) didn’t want that. They wanted to travel. Then, they gave in, got married, are having kids and wanted a new house. That’s a massive wave that I think is going to help the residential sector. That demand is not going away.”

The available supply of homes is an issue, though.

“When demand exceeds supply, what happens to price?” Reddin says. “It goes up. So we’ve seen a tremendous increase in the price of homes. But the demand remains.”

2. Nonbuilding. Like residential building, Reddin says construction materials producers should be optimistic about nonbuilding.

“In the nonbuilding side, it’s highways and streets,” he says. “The good news there is we have a five-year committed funding through the IIJA. Additionally, we have a lot of states in the last five years or so that put in funding programs.”

3. Nonresidential building. A variety of opportunities are present in nonresidential building, as well. The e-commerce sector, which Reddin characterizes as making up roughly 50 percent of the commercial market, is here to stay.

“If you drive most interstates [and] if you’re in major metropolitan areas, you’re going to see an Amazon warehouse being built,” Reddin says. “They’re a huge consumer of concrete.”

Kevin Yanik

About the Author:

Kevin Yanik is the editor-in-chief of Pit & Quarry magazine. Yanik can be reached at 216-706-3724 or kyanik@northcoastmedia.net.

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