Your behavior appears to be a little unusual. Please verify that you are not a bot.


What to watch as the rest of 2022 unfolds

By |  June 22, 2022
Says FMI Capital Advisors' George Reddin: "Many producers don’t have a lot of material on the ground. They’re selling everything they can make. That’s good. That’s a good market.” Photo: P&Q Staff

Says FMI Capital Advisors’ George Reddin: “Many producers don’t have a lot of material on the ground. They’re selling everything they can make. That’s good. That’s a good market.” Photo: P&Q Staff

Manufacturing is yet another opportunity within nonresidential building, according to Reddin.

“Manufacturing, year over year in April, was up 34 percent,” Reddin says.

Inflation and recession

Regardless of the growth happening in sectors like manufacturing, inflation is present everywhere. 

“The Fed’s No. 1 job is to control that,” Reddin says. “How are they going to do that? They’re going to increase interest rates, and we’re expecting two more [hikes] here pretty quickly in June/July – 50 basis points or so each. So interest rates are going to continue to go up to fight inflation.”

As those events unfold, construction materials producers will continue to deal with the real impacts of cost increases.

“In general, inflation is a problem,” Reddin says. “Inflation is affecting your business’s fuel and labor costs. It’s an issue, the Fed’s on it and we’ll see.”

Inflation, however, is a two-way street.

“If the cost goes up, I get to pass that on to my customer,” Reddin says. “Pricing has been good. Demand has been strong. It continues to be strong, but many producers don’t have a lot of material on the ground. They’re selling everything they can make. That’s good. That’s a good market.”

Consider, too, that a technical recession potentially lingers.

“Our first quarter was slightly negative,” says Reddin, referring to GDP growth. “So the question is what happens in the second quarter.”

According to Reddin, a key factor that could force a recession is trade.

“Let’s review the formula for GDP: It’s consumer spending, private investment, government spending and then it’s the balance of payments – the trade, [or] the difference between our imports and our exports,” he says. “The culprit in [the] first quarter was trade. We weren’t exporting enough. Imports were up 19 percent while exports were down 6 percent.”

If a recession does occur, Reddin questions how severe it will be and what the recovery will look like.

“For example, for those of us with gray hair or no hair, we’ve had recessions that you didn’t feel,” Reddin says. “You talked about it during an operating cycle, but you didn’t really feel it. So will this be mild? Will this be a V-shape? Will we even notice it? 

“We don’t think it’s going to be like the Great Recession,” he adds. “So the question is, how mild?”

Supply chain

Issues within the supply chain are yet another factor shaping FMI’s construction materials market outlook.

“Coming out of ConExpo-[Con/Agg 2020], one of my customers bought a plant and had it installed in September [2020],” Reddin says. “[That’s] six months. Today, it’s 12 [or] 18 months or longer. Everybody knows about the supply chain issues created from the world turmoil from the pandemic, from China shutting down ports, from the Russian war, from the labor shortage.”

The producers who embrace the concept of total productive maintenance (TPM) stand to outperform their competitors, he adds.

“What we see the best-of-class doing is having embraced TPM,” Reddin says. “The smart ones who’ve really embraced this are apt with their predictive maintenance programs. They’re able to realize what they have coming, and they’re getting their request in for parts and plants earlier.

“Those who aren’t doing all these things are going to be in a real pickle,” he adds. “They’re either going to have downtime, no time, expensive repair and maintenance, squashing margins. I think the people who’ve embraced things like TPM are going to be the winners coming out of this.”

Labor

The industry’s inability to hire and retain good employees is a problem that also persists, limiting the growth of producers who struggle in this area.

“Part of it is there’s 1.9 jobs available for every available person,” Reddin says. “They’re just the wrong jobs. We’re not appealing to people with the right jobs. We have a mismatch of the needs versus what people are willing to do.”

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.

Comments are closed