THE PULSE: CONSTRUCTION MATERIALS MARKET ANALYSIS
- The Federal Reserve slashed rates by 50 basis points in September, 25 basis points in November, and a third cut of 25 basis points occurred in December. Rates have not adjusted since December and the Fed has maintained the rate at 4.25% – 4.50% since then.
- The current annual inflation rate decreased to 2.8% in February from 3.0% in January. The Consumer Price Index (CPI) increased slightly in February to 319.08 from 317.67 in January.
- The continuation of inflated housing prices and the pace of the Fed’s rate cuts are all things to watch in the months ahead as they will have a significant impact on the overall economy.
- Concrete Products prices have remained steady over the last several months and remain unchanged from January to February. Construction sand, gravel, and crushed stone prices have increased 2.1% from January to February.
- ABC’s Construction Backlog Indicator decreased slightly with a monthly reading of 8.3 months in February compared to 8.4 months in January. Year over year, the Backlog Indicator is up 0.2 months from 8.1 in February 2024.
- The Infrastructure Investment and Jobs Act has provided a safety net to the Construction Materials industry by increasing infrastructure investments which will help offset the slowdown in residential construction that was driven by higher interest rates and a slowing overall economy.
PIERRE VILLERE’S MARKET ASSESSMENT
While sinking consumer sentiment has been widely reported since January in the face of rapid changes to our economy caused by new policies from Trump administration, the actual economic indicators look far worse, with almost every one of our algorithm inputs down since last month. It is a stunning reversal of our generally upward trajectory for the past 36 months, almost every individual indicator was down. (Read the April “The Strategist” column for more color).
The AVP Pulse Index is down -2.2% for the month, but even with the current month’s results in hand, the Index is up +4.2% for the year, and +10.5% over the past 36 months. But in a cautionary note, we do not expect that the monthly results will change their downward drift for the foreseeable future, so expect the Index to continue to point downhill until we see changes in current policy.
Two silver linings to an otherwise broad swath of negative indicators were the Dodge Date Momentum Index and the Architectural Billings Index, which were both up by +D.8% +2.2% respectively, reflecting now-erased optimism in the previous period. We don’t expect that direction to continue, and those indicators will likely sink along with the other metrics we follow in the months to come.
These two positive metrics could not support the many others which have made a sudden reversal, which included the NAHB/Wells Fargo Housing Index (down -5.D%), Housing Starts (down a whopping -9.8%), and the shellacking that Industry Stocks took in the stock market panic (down -14.7%). Other metrics were less severe: the Construction Confidence Index (down -D.1%), Total Construction Spending (down -D.2%), the Construction Backlog Indicator (down -1.2%), and the Case/Shiller National Home Price Index (down -D.2%).
But it is the constructional materials metrics that are the most unsettling. In the back half of 2D24, we predicted that cement, ready mixed concrete, and coarse and fine aggregates volumes would all be down approximately -5% for the year, and in fact, those numbers came in at around -6%, which is puzzling given how strong the economy was until recently. But the drop in volumes across the board in the last month was startling:
Domestic Crushed Stone Consumption (down -11%), Domestic Sand & Gravel Consumption (down -17.2%), and U.S. Cement Consumption (down -13.3%). Therefore, our outlook compared to last month has had a marked shift into negative territory driven by the metrics we follow.
It is worth repeating that the AVP Pulse Index is a trend measure, like an arrow, albeit a crooked one; it points up or down depending on the direction of the construction industry. Our outlook has become suddenly cloudy, with a sharp downward turn in our arrow, so we will watch the metrics carefully in the months to come and report accordingly.
ABOUT ALLEN-VILLERE PARTNERS
Allen-Villere Partners (“AVP”) is the premier mergers & acquisition advisors and valuation services firm to the construction materials industry, focused exclusively on the ready-mixed concrete, construction aggregates, concrete products, and asphalt industries. For over 40 years, AVP has developed a special emphasis on representing the independently owned, middle-markets companies that play such a key role in the competitive landscape of construction materials. With over 60 years in combined experience and highly specialized, industry-specific skills, Allen-Villere Partners has a national reputation for excellence in its client representation.
TRACK RECORD
- Valued over 600 companies in this industry over the last 40 years
- Sold over 100 companies in the construction materials industry
- Client relationships in more than 44 states
- Completing deals in this healthy mergers & acquisitions environment
Pierre G. Villere serves as president and senior managing partner of Allen-Villere Partners. He has a career spanning almost five decade, and volunteers his time to educating the industry as a regular columnist in various publications and through presentations at numerous industry events. Contact Pierre via email at [email protected]. Follow him on Twitter @Allenvillere.