By Brian Hall
Much has been made of this ride we have been on since the COVID pandemic. ConExpo marked 3 years since the world hit the pause button and it’s been a little quirky since. Post pandemic has given us 2 things; high demand and short supply. Infrastructure dollars are pouring in making the rest of the asphalt world quite strong bringing high demand for our type of work. Supply is the issue. Not only the supply chain, which is where my corner of the industry suffers, but qualified manpower. Everybody from machine operators to truck drivers to office personnel, hiring and retaining is the challenge.
Let’s take a step back from the “asphalt” part of this article and focus on the “answers”. The most prevailing topic discussed when I go to industry meetings, dealer meetings and contractor meetings is the dreaded “R” word. Are we headed for a recession? Are we already in one? Let’s take a quick look at the signs of a recession and make our own assessment.
Slowdown in consumer spending. Nothing today could be farther from the truth. Home values are high for a reason. While customer spending slowed by .2% in December, consumers entered 2023 with a spring in their step. This slowdown in spending was seemed to be caused by higher interest rates. Prior to December, each month of the year saw an increase in the year before.
A spike in unemployment. Jobless rates in January of 2023 was 3.5%, the same rate as right before the pandemic and the lowest level since 1969. Breaking news? Nope. Hiring and retaining has never been harder and its not seeming to get better. At 5.7 million people out of work, it could be said that these are the “unemployable” citizens. There are many political reasons for this that I won’t go into here.
The slowing of the manufacturing process. I work for a manufacturer that produces hundreds of thousands of finished goods and parts per year. Backlogs are at record pace and demand is as high as ever. Market leaders are finding that they need to find new ways to produce finished goods faster, more efficiently while not sacrificing costs.
A drop in personal income due to job loss. As of December 2022, personal income increased $49.5 Billion or .2%. The increase in personal income primarily reflected increases in compensation and business owner’s income. Businesses are profitable and are sharing the income and the employees are remaining loyal.
An inversion of the yield curve. What is the yield curve? Glad you asked as I had to study up on it myself. Basically, it’s when long term interest rates are less than short term rates. This happens when investors are nervous about the future and expect short term rates to fall. In easy terms, typically the longer you invest, the higher the interest rate you receive in return. When an inversion occurs, your return on short term investing exceeds long term investing. We ARE currently in an inverted yield curve at -1.15%.
Notice that one economic factor that is not a red flag is interest rates. Interest rates are as high as they have been since 2008. Rates are going up but make no mistake, they are not high. Ask anyone who borrowed money in 1981 how they view today’s rates. Those rates were above 16% and were still in double digits by the end of the decade. The reason, runaway inflation. While inflation is a hot topic today, its not near the rate of the 1970’s and 1980’s.
Apologies to those looking for tips on de-winterizing their equipment. We’ll re-visit that later. The economy is in the strangest position I have seen it since 1986 or 2008. My advice is very simple, judge for yourself, make solid economic decisions based on what you see outside your window, not what some economist (or author of an article in an asphalt magazine) tells you how to react and keep serving the local industry in your area. Keep your head down, heels up and feet turning. We’re in the greatest industry in the nation-improving the infrastructure of our great country. Oh, and don’t forget to follow your manufacturer’s recommendations for service.
Brian Hall, LeeBoy Territory Manager. He can be reached via email at Brian.Hall@Leeboy.com.