By Ty Gable
President, National Precast Concrete Associatio
Are we there yet? It’s a question that anybody traveling with kids on a long-distance car ride has heard many times before. And it’s a question I’ve been hearing all year long from precast concrete manufacturers – only the topic is much more serious. They’re wondering about the economy, the end of the recession and the return to at least some normal level of activity.
Well, in a word, no. We’re not there yet. But in 2011, we’ll be moving in the right direction. After three years of declining sales volume in the precast concrete industry, we’re anticipating very modest growth of about 2% in 2011. If our estimates prove accurate, the slight rebound will bring the industry to about 69% of the high water mark for the industry – 2007, when total sales volume in North America was $27.5 billion.
We won’t see a full recovery to the 2007 level of activity any time soon, because the post-recession environment will be much more subdued than the housing bubble years. However, signs are pointing in a positive direction for the first time in many months, and 2011 looks hopeful. If the car was in the ditch as we heard many times during the campaign season, we’re inching our way back up to the road. We’re still spinning the wheels, but at least we’re going forward.
If you’ve ever been through a recession in the precast industry before, you recognize the signs. The stock market recovers first, then the economy starts to grow, then construction comes back, and finally at the tail end, the precast industry starts its recovery. Because of the nature of our business, we’re at the very end of the cycle.
It takes a revival of housing to start the snowball rolling, followed by commercial development around that housing, followed by institutional and public works construction as states and cities take in new tax revenue and can finance bonds for infrastructure building and other major projects. So we’re not there yet, because housing is not coming back. While McGraw-Hill’s 2011 Construction Outlook forecasts a double-digit increase in single-family housing starts, we’re starting from a very low level, and it doesn’t appear to be enough of a boost to have a serious impact. There’s too much housing inventory on the market and too many pending foreclosures. The housing sector is still sorting itself out, and it will hold us back through 2011.
The good news is that demographics eventually will pull housing out of the doldrums as soon as the financial side of the picture clears. The first of the echo boom generation reaches age 30 in 2012, and there’s a 13-year population bubble of new candidates for homes on the horizons as children of Baby Boomers reach prime age for marrying and starting families. Trust me on this; I’m about to become a grandfather.
Major unanswered questions loom in Congress, however, that could impact the precast industry in 2011 and for years beyond. The transportation bill, SAFETEA-LU, is being funded under a continuing resolution set to expire Dec. 31, 2010. A new bill, which included significant infrastructure rebuilding components, is likely to languish in Congress through 2011. Rhetoric about eliminating earmarks will only stall the process further. There’s also a movement to increase the gas tax by 25 cents per gallon, with 15 cents going to the highway trust fund and 10 cents going toward deficit reduction. An increase of this sort would stabilize the trust fund into the future and provide the certainty needed by states and municipalities to undertake major bridge and highway projects that would certainly provide a boost to the precast sector.
How all these things shake out (and more) are all part of the picture when forecasting how much precast will be produced in the coming year. It’s inexact science at best. One thing we can guarantee you is that we’ll be following developments closely in 2011 and reporting on the environment. While we’re still scraping along the bottom, it is likely that the worst is over and better days are ahead. Best wishes for a happy and productive new year.