THE PULSE: CONSTRUCTION MATERIALS MARKET ANALYSIS
- The Federal Reserve has maintained rates at 4.25% – 4.50% since the last 25 basis point cut in December 2024. It is uncertain as to when we will see the next rate cut.
- The current annual inflation rate increased slightly to 2.4% in May from 2.3% in April; however, down from 2.8% in February. The Consumer Price Index (CPI) increased slightly in May to 321.47 from 320.80 in April.
- The continuation of inflated housing prices, the pace of the Fed’s rate cuts, and constantly evolving policy changes are all things to watch in the months ahead as they will have a significant impact on the overall economy.
- The Conference Board Consumer Confidence Index increased to 98.0 in May. This is a 12.3 point rebound from April’s 85.7 reading. The University of Michigan Index of Consumer Sentiment also saw an increase for June with a preliminary reading of 60.5, up from 52.2 in May.
- ABC’s Construction Backlog Indicator decreased in May with a monthly reading of 8.4 months compared to 8.7 months in April. Year over year, the Backlog Indicator is up 0.1 months from 8.3 in May 2024.
- The Infrastructure Investment and Jobs Act continues to provide 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
As I wrote last quarter, the all-too-critical measure of consumer sentiment suffered a crushing downturn early in the year, only to bounce back in the last month as the wear and tear of the droning over tariffs seems to now be falling on the deaf ears of consumers. But other inputs served to hammer the Index despite positive upward trends in some of the inputs; the downdraft in materials deliveries in the second quarter was so profound, none of the other indicators that were in the black seemed to matter.
And as I also said last quarter, the Index suffered “a stunning reversal of our generally upward trajectory for the past 36 months, as almost every individual indicator was down” that quarter. Unfortunately, that is our message again this quarter, as the chaos over tariffs in Washington and around the globe continues to weigh on our economy.
The AVP Pulse Index is down -0.6% for the month, but still up +2.2% year-over-year and +8.2% over the past 36 months. But these positive Yearly and 36-Month measures are rapidly shrinking, because in the last quarter, the Index was up +4.2% year-over-year, and +10.5% over the prior 36 months. This clearly means the gains in the Index are shrinking with no sign of relief for the overall construction economy on the horizon. As I said last quarter, “… in a cautionary note, we do not expect 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.” Three months on since I wrote that, nothing has changed – except that consumer sentiment is starting to recover if last month’s readings are any indicator.
Three silver linings to an otherwise broad swath of negative indicators were the Dodge Data Momentum Index (+3.8%), the Case-Shiller National Home Price Index (+0.8%) and Housing Starts (+1.6%). But as I stated last quarter, we don’t expect that direction to continue, as those indicators will likely continue to fluctuate along with the other metrics we follow in the months to come.
Given the uncertainty and chaos in the economy, I am asked more often now about my outlook for the construction economy, and I remain positive. Maybe the next several months will be difficult, but the chaos and uncertainty will come to an end, certainly well before the mid-term elections which are less than 18 months away. If I’m right, you see the headlights pointing uphill again as the industry gets past the current downdraft.
It is worth repeating that the AVP Pulse Index is a trend measure, like an arrow, albeit a crooked one; it measures a rolling 36-month period that points up or down depending on the direction of the construction industry. Despite the current disruption, we are optimistic this will come to an end, and prosperity in our industry will resume.
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.