It’s anything but typical. The economy has been in recovery in the United States since June 2009, but if you’re connected in any way with the construction industry, you wouldn’t know it. While the nation’s official barometer – the gross domestic product – has been very slowly rising for the last seven quarters, construction hasn’t followed suit, and as the construction industry goes, so goes the precast sector.
We can trace the recession in construction back to September 2007. That means we’ve endured more than four full years of declining business. So will 2012 be the year we turn it around?
Not likely, I’m afraid. Although the good news – if you can call it that – is that it probably won’t get any worse. While data for the precast concrete industry will not be available for a few months, it appears that our sector lost about 4% in 2011, to a projected total sales volume of $18.5 billion. An optimistic look ahead to 2012 puts us right in that same neighborhood again. NPCA is forecasting no change in the size of the market for the next year.
Again, this is anything but typical. We expect normal cycles of expansion and contraction, but this dive has been deeper, and the climb out is simply going to take longer. If you’re in the precast business, you know the numbers. We’re down about 40% from the high watermark in 2006. It’s a level of business we will not approach any time soon.
But take heart. If you have survived the last four years and can hold on through 2012, there are signs that 2013 and beyond will bring slow growth and opportunities for those precasters who are nimble enough to adapt to a changing construction marketplace. If you’re faster, leaner and greener than you were five years ago, you’re headed in the right direction.
Several questions could be answered in the coming year that may have a major impact on the precast concrete industry:
• Will Congress pass infrastructure rebuilding legislation? There is broad understanding that the nation’s infrastructure needs serious attention, and an overwhelming majority of Americans supports the concept, but the gridlocked Congress isn’t close to crafting meaningful legislation.
• Will we ever have a new transportation bill? The Senate is working on a two-year 109 billion package; the House is looking at six years of funding at a level between $230 and $285. Funding is a problem, because the current mechanism of funneling federal gas taxes to the Highway Trust Fund doesn’t come close to paying the bill. Both the Senate and House are looking for additional revenue sources, and a bill won’t be passed until it is paid for.
• Will the economy go back into recession? Depending on whom you listen to, there’s somewhere between a 20% and 50% chance that the United States will slide back into another mild recession in 2012. How the European debt crisis plays out will have an impact, but if another recession comes along, it certainly won’t help.
Other critical impacts that will impact precasters include the rising cost of doing business, coupled with continuing downward pressure on pricing. The cost of construction materials is about 6% higher than last year at this time. The cost of providing benefits will continue to be a question mark for the next several years as health care legislation is sorted out, and there are EPA regulatory battles being fought on greenhouse gases and “nuisance dust” that could impact manufacturers in the future.
There are, of course, regional differences that will impact how your own company will fare, but don’t expect any major changes in the coming 12 months. Even if a miracle occurs in Washington and Congress passes a meaningful bill in 2012, it would likely be 2013 or 2014 before any new infrastructure or transportation funding reaches the streets. If you’re selling product in depressed states like Florida or Nevada, it’s still going to be depressing in 2012. If you’re bidding for business in a more upbeat state like Texas, it’s likely to stay upbeat in 2012. As usual, the precasters who continue to innovate, market aggressively and produce high-quality work should be able to hang on through 2012.
Here’s hoping we beat the forecasts and start the recovery a year ahead of schedule.