Many years ago, after we had been married about 18 months, my wife came home with an exceptionally short haircut. “Do you like it?” she asked. “Um, well…yeah, sure,” I lied, while internally struggling through deep disappointment. Was the long-blond-haired beauty whom I married gone forever?
I’m reminded of that internal crisis when looking at the latest stream of economic data, which increasingly shows the economy going nowhere. Each piece of good news is followed by a snippet of bad news, which is followed by raft of conflicting speculation from economists. Where’s that lovely construction economy from 2006? Is it gone forever?
Most recessions look like the letter V when plotted on a graph, with an average decline of eight to12 months followed by a sharp recovery. We have seen prolonged recessions in the past, which look more U-shaped but still feature the quick upturn. There’s also the W-shaped recession, which is often referred to as a double-dip. This one, however, is beginning to look like an L-shaped recession. We’re missing the sharp upturn and languishing around the bottom of the cycle. Of the 10 previous post-World War II recessions (as defined by the National Bureau of Economic Research), this is the longest. And unfortunately, there’s no quick recovery in sight.
Jobless rates are not the worst the U.S. has ever faced, but in the construction industry the rate has been double the general population ever since the decline started in 2007. That 20% unemployment rate doesn’t include immigrants who returned home, those who have found work in other professions or those who have given up looking for work. At its worst, the jobless rate in the Great Depression hit 25%, so our industry is not far off. In California, one in three construction jobs has disappeared, and in some states unemployment in skilled trades is above that 25% marker. If you’re talking about the construction industry, we’re way past recession stage – we’re in a Depression.
In the construction sector of the economy, housing is the bell cow. When housing is booming, we’re all riding high. Commercial construction and infrastructure follow new housing developments, providing plenty of opportunities for precasters. Consumers move into new houses, buy a lot stuff and start an upward spiral of prosperity. During the typical recession, housing starts will cool off and slow everything down for a couple years, then the upward cycle will start again, led by housing. Well, the housing recovery is not happening, so we’re stuck on the low baseline of the “L.” With the recent news that housing starts declined 27% in July, it looks like we’re not coming off the baseline any time soon.
During this period of construction depression, one of the biggest concerns is the impending loss of talent we could face in the precast industry as engineers, skilled production workers and other professionals migrate away from precast operations and into other professions. The longer the downturn lasts, the less likely they are to come back. If this happens, it will be a true loss.
My wife’s hair grew back, of course, and my initial disappointment dissolved. She was, after all, the same person I had married. Her hair is not nearly as long today, but she’s still a beauty. We’ve raised three wonderful children and are expecting our first grandchild soon. The precast industry too, will come through this depressing time, but it will take patience and the discipline to maintain sound business practices without sacrificing quality or safety. It will take Congressional willpower to pass a new transportation bill next year, to keep the Bush tax cuts in place so that small businesses don’t suffer, and to take meaningful steps to rebuild the nation’s crumbling infrastructure. It will take fiscal discipline by states, which need to make serious, difficult, politically unpopular budget cuts to get their own houses in order. It’s going to be a slow climb out of a deep hole, but we can do it. It’s not going to be a V or a U-shaped recovery, but we’ll get there, and the precast industry that emerges on the other side will be leaner, greener, more automated and more competitive than ever.
President, National Precast Concrete Association