Our firm has a national practice in the construction materials industry, with a focus on ready-mixed concrete, construction aggregates and concrete products of all types, including precast. As mergers and acquisitions advisors, we must pay careful attention to the economic winds, as a strong headwind can slow our industry. We became well-known for calling the Great Recession as early as the spring of 2007, when our grassroots touch with clients across the country revealed big, black clouds on the economic horizon that we knew would have a big impact on our industry … although we had no idea it would be so bad for so long. But we saw it coming and publicized it widely. More recently, we loudly went against the grain and, from the beginning of interest rate hikes, we were a lone wolf calling out “no recession.”
We were right.
So, what is our secret sauce for measuring the ebbs and flows of our cyclical industry?
Sentiment. I have written many times about consumer sentiment, which is the backbone of our economy. When consumers feel good, they spend more freely, propelling our economy ever higher, as the American consumer represents fully 70% of annual Gross Domestic Product (GDP). This sentiment, or confidence, is self-fulfilling. Back in the Great Recession, consumers saw family, friends and neighbors losing jobs, companies announcing layoffs and home foreclosures everywhere. Sentiment plunged. But as the economy slowly recovered, so did sentiment. Over time, all those family members, friends and neighbors became employed again. Some enjoyed raises and promotions, companies they worked for resumed hiring, and the consumer felt good. They bought cars and appliances and, yes, they found a way to qualify for a home mortgage to replace that foreclosed house from years earlier.
Sentiment is defined in the dictionary as “an attitude toward something; regard; opinion; a mental feeling; emotion.” Confidence is much the same, defined as “full trust; belief in oneself and one’s powers or abilities; self-confidence; self-reliance; assurance.” The words are almost synonymous.
There are two organizations that track sentiment and confidence. The University of Michigan calls theirs the Consumer Sentiment Index, which dates back to 1966, and was established at 100. Separately, the Conference Board, a nonprofit business group, surveys their corporate membership for their own Consumer Confidence Index. Both compile their data monthly and track remarkably similar paths, as their respective results almost never diverge.
The history of measuring sentiment is an interesting one to study. On the heels of the long economic expansion of the 1990s, the indexes peaked in late 1999. Then two shoes dropped. The first was the bursting of the Dot Com bubble, which left consumers rattled as they saw the gains in their
401(k)s decimated by the implosion of the internet frenzy. The second was the tragedy of 9/11. This double punch resulted in the sentiment numbers falling from 112 in late 1999 to 81.8 by September 2001. This locked up consumers’ wallets, and the nation fell into recession. Things improved slowly, but then the onslaught of the Great Recession in the fall of 2008 started another slide.
Today, after a long run-up in sentiment since the end of the pandemic, sentiment numbers are drifting downward, a trend that may slow the economy. Having said that, the construction economy exists in its own cocoon and will prosper despite a softening in sentiment that may temper our current prosperity. But with that will come lower interest rates and all that means for strengthening the economy once again.
As I write about the precast industry, I will try not only to keep my finger on the pulse of the current business climate but also hope to be a sentinel for any downdrafts in our economy. This will help precasters plan for their future, good times and bad.