Last month, I wrote about the housing boom that I had been predicting, and since then, the National Association of Realtors released a report stating that construction of new housing in the past 20 years fell 5.5 million units short of long-term historical levels and called for a “once-in-a-generation” policy response. But a booming housing market rife with shortages is only a reflection of the underlying strength of the overall economy, and the once-in-a-lifetime condition that is upon us.
As has been widely reported in the business press, just look at the high-level metrics that were announced in early June: the U.S. economic recovery is unlike any in recent history, powered by consumers with trillions of dollars in extra savings, businesses eager to hire and enormous policy support at all levels of the federal government. Businesses and employees are likely to emerge from the downturn with far less permanent damage than occurred after recent recessions, particularly the 2007-09 catastrophe.
New Businesses. These are opening at the fastest pace on record. The rate at which workers quit their jobs, which is a proxy for confidence in the labor market, matches the highest going back at least to 2000. American household debt-service burdens as a share of after-tax income are near their lowest levels since 1980, when recordkeeping for this particular metric began. In early June, the Dow Jones Industrial Average was up nearly 18% from its pre-pandemic peak in February 2020, and home prices nationwide are nearly 14% higher since that time.
When COVID-19 pandemic restrictions sent the U.S. economy into free fall last spring, economists and policy makers worried it would take years for workers and businesses to heal. They now expect the economy’s size to surpass pre-pandemic levels when the official numbers are released for the second quarter.
Analysts and economists alike project that by the end of this year, gross domestic product will reach the path it was projected to follow had the pandemic never happened, and then exceed it, at least temporarily. Oh and yes, the speed of the rebound is also triggering turmoil; the shortages of goods, raw materials and labor that typically emerge toward the end of an expansion are cropping up much sooner, pushing up inflation as demand exceeds supply across all sectors of the economy. But I share the view of many experts, one also held by the Federal Reserve, that the jump in inflation will be temporary.
Boomerang Rebound. Why is this boomerang rebound so different that previous downturns? First, this economic shutdown was artificial in nature, caused by the closing of a global economy basically overnight. In other downturns, the recession is caused by a structural shift that causes a contraction, and economic growth goes negative. The 2007-09 recession was the most recent, and among the most famous, as it came about when the trillions of dollars of sub-prime, mortgage-backed securities blew up, something I saw coming as early as the end of 2006.
While the hospitality industry certainly took it on the chin last year, almost every other sector of the economy boomed throughout the pandemic, led by the auto industry and consumer durable goods orders. Now with the COVID scare in the rearview mirror, consumers have turned their spending from those that took precedence during the lockdown to other forms of discretionary spending, particularly in hospitality; restaurant covers, cruise ship cabin bookings, hotel room/nights, and passenger seat miles are all expanding sharply, with no end to further growth in sight.
The aggregates industry stands poised to prosper from this economic expansion. The growth is so wide and expansive, it will drive increases in both tax revenues and consumer dollars available for home projects, along with commercial and industrial initiatives as enterprises both public and private enjoy bulging profits.
Add to that the promise of some sort of infrastructure bill from Congress, and we remain optimistic the economic expansion over the next couple of years will go down in the books as one of the strongest expansions in the last 100 years.
Pierre G. Villere serves as president and senior managing partner of Allen-Villere Partners, an investment banking firm with a national practice in the construction materials industry that specializes in mergers and acquisitions. He has a career spanning almost five decades, and volunteers his time to educate the industry as a regular columnist in publications and through presentations at numerous industry events. Contact Pierre via email at [email protected]. Follow him on Twitter @allenvillere.