September 19, 2016

Dayton was blessed a few days ago to have economist Brian Beaulieu make a presentation at the Dayton Area Manufacturers Association. Brian and his brother, Alan, use economic data specific to certain sectors of our economy to uniquely predict what is coming in the next 1, 5, and even 20 years. They approach economics more as engineers and have a very high accuracy rate (in the mid 90% range). So I jump at the chance to hear them.

I left the meeting with a feeling of joy. Brian’s presentation touched on all sectors of the economy here in the United States and around the world. His assessment painted a nice picture for the construction sector. Here some highlights;

Long-Term Recession Forecast

The Next Slowdown

Our economy tends to heat up then have cooling periods about every 7 to 10 years. Those cool downs tend to be 6 to 9 month flattening’s or drop-offs followed by a quick recovery. Painful for many, but short lived.

Brian says the next slow down will be in 2019 or 2020. His data suggests it may just be a flattening or a minor drop-off. Until we pass that softening he cannot predict the next one.

He also predicts our economy will grow each year until 2019-20. We are in for a good period. His advice is take advantage of it.

Budget for growth- The opportunity is here now, find the money to grow if that fits your strategic objectives.
Implement Technology- Finding people to hire is going to be our issue. Use technology to get more done with limited staff.
Lock in costs- Find ways to mitigate coming price increases.
Increase your prices- You will need more money to increase pay and hold good employees. Although not here now, inflationary days are coming. You will need money to grow and upgrade your company.
Invest in Sales and Marketing- Seek to grab more of the increased activity.
Find and keep good staff- Finding good staff will be even harder. Keep them once you do.
Plan for the 2019 dip- Be sure your cash reserves are sufficient to carry you through it.

The Next Serious Recession

Brian’s team has been pointing to a major recession in 2029-30 for the past 5 years. Yes, there will be a slowdown between 2019 and then, but those are always manageable. He says 2029 is going to be ugly. Similar to what we had in 2008-09. Long term planning should take that into consideration.

For some it means cashing out before then. For others it means paying off debt and building cash reserves to live through it. He suggests some thought should go into your plan now, even though you still have many good years before it hits. Of course that prediction causes a lot of questions and concern.

Defending his forecast, Brian states that any prediction is based on what is known right now and what they have high certainty might happen. What they cannot consider is what hits out of the blue and there’s hundreds of possibilities on their list. Such as war, catastrophes, political upheaval, etc. Given the accuracy of their group, I tend to believe him.

Affecting the Construction Trades

Construction will do nicely according to Brains forecast.

Millennial Effect

Where young people are congregating is where construction will boom. For example, my area, Columbus and Cincinnati are doing well with the youngsters and construction is already reaping the rewards.

The cities where young people are leaving are those with slower growth. Growing population drives economic activity. Shrinking populations retard economic growth and cause labor shortages.

Research data shows millennials do intend to get married, have kids, and buy a house. They’re just doing it later than previous generations. By the way, Brian says if you still have a millennial living in your home throw them out now. Good jobs are plentiful as employers struggle to fill positions!

Residential Housing

As the millennials enter the housing market, which they are doing now, short supply means house prices will keep rising. Residential housing is a good market to be in until 2027. Brian says with interest rates so low and such upside on house prices, now is the time to invest in real estate.

Another housing driver are immigrants. They need a place to live too. New house construction will be good for the next 10 years. Renovations will be hot too. Demand is there, the houses they want are not. We are already in an under-stock condition for mid-price homes, especially in cities millennials have flocked to.

Labor

Each city has a different condition based on whether they are gaining or losing population. Generally, those who have been unemployed for more than a few months are probably not worth hiring. The people you want are probably working for someone else right now.

And that conundrum is not going to change. We have a growing population of unemployables. Older folks who don’t want to work, don’t need to work, or can’t work. Another growing rank is lower income folks who do not understand working nor are prepared to hold a job.

Now add a growing economy. There is far less available labor than what you are going to need. For the past 15 years immigrant labor has filled the void in the construction trades. As it will for our future. Immigration policy or guest working visas needs attention to allow more in. Brian says some companies are making trips to Mexico to recruit labor and recommends such tactics for our industry.

Something to consider, Mexico is doing a lot of good things; supporting their economic growth. As Mexico does better, fewer Mexicans will want to come to the U.S. If their political leadership does more right than wrong, the growth trend will continue. Because finding and keeping good employees will be difficult, Brian suggests serious effort be given.

Always be looking- When you find somebody start talking.
Pay well- Don’t let staff be lured by others.
Educate- Increase the productivity of all your people.

Population growth

The United States currently has around 330million people. That population is expected to grow to 430million in the next ten years, a large segment will be new arrivals. More people are necessary to fuel a growing economy.

The population growth supports continued construction growth. Immigrants or guests that work are a net gain for our economy. Those who are not, end up costing us. How we allow in the talented and ambitious and keep out the unskilled or welfare seekers is a difficult question for our immigration policy.

Housing Demand

More people means more places for them to live. Part of the driving factors for continued housing growth over the next 10 years.

Housing Prices

Home values will rise as shortages exist. Ohio home values are now higher than before the 2008 recession. Brian’s statement, “real estate is a great place to invest,” also includes his suggestions of where.

Hot cities- Invest where populations are growing.
Urban areas- Invest in downtown areas and suburban neighborhoods.
Places with a view- Buy homes with great views.
Places on water- Homes on bodies of water will be particularly hot.

Commercial Facilities

Offices, warehouses, and manufacturing facilities will see good growth too. As businesses do well so too the infrastructure to support them.

An interesting fact; the United States is still the world’s largest manufacturing economy. Our percent of worldwide manufacturing is predicted to grow. With all the talk about our manufacturing moving off-shore, most would be surprised to hear this fact. The thing is, while we still make as much stuff, it takes way less people to do it. Manufacturing jobs are greatly depressed because of technology.

Another indication of commercial construction growth is the American Rental Association predictions for construction equipment rental. They claim to see a 4.6% per year growth through 2020.

Infrastructure

A growing economy and increasing population would logically lead to believe infrastructure spending will also increase. Driven by governments spending for sewers, water, streets, bridges, airports, highways, etc will be up and down.

Sewer and water upgrades already are needed in most major metros. Finding money for expensive and disrupting upgrades is the hard part. Cities able to swing the investments will have an edge over those who cannot.

Conclusion

We who are connected with the construction trades have several good years ahead. The slowdown in 2019-20 will be short and construction might slide right through it. Plan well to take advantage of the opportunities.