Almost every business with losses in sales has dramatically staunched the bleeding on the bottom line largely through cutting payroll. We are witnessing this all over our industry in the current economy.
Many of our clients have tackled the toughest downturn in the concrete industry since the Great Depression by mothballing plants, consolidating batching and delivery into a smaller number of locations, and hauling loads over longer distances. While this has resulted in layoffs, it has been a key to survival, particularly in the hardest-hit markets. It pains us all to deal with lay-offs, but the resulting impact on productivity makes it a necessary evil.
And if you look at the overall economy, things will not get better soon. Historically, unemployment lingers far beyond the end of the recession, and this one is no exception. Just look at the 1981-82 downturn, the worst recession we had until now. We were in a recession from July 1981 until December 1982, a short 18 months compared to the long, painful Great Recession we are currently experiencing.Reaching full employment
Unemployment peaked at 10.8% that December, but it was February 1984, 14 months later, before unemployment fell below 8%. Unbelievably, it took 44 months, or until September 1987, before unemployment fell below 6%. Full employment is the subject of much economic theory, but international economists consider a range of about 5% as full employment. That number wasn't reached again until March 1989.
This lag in jobs recovery will have political implications. For example, despite the victory in the 1991-92 Gulf War, President George H.W. Bush's re-election was derailed by Bill Clinton against the backdrop of a short but tough recession. The mid-term elections of 2010 may be similarly impacted, as the consensus indicates an unemployment rate at 9% or more by the fall of 2010, and still in the 8% range by the time of President Obama's re-election bid in 2012.
What does that mean for our industry? Businesses learn to do more with less in recessionary times, and head-counts grow slowly in expanding economies. Ready-mixed concrete producers will mirror the strategy of the rest of the country as they study their newfound efficiencies. This industry will be slow to hire workers.
If the industry recovers strongly, as PCA predicts, we will probably witness shortages in raw materials, delivery capacity, and production infrastructure, and caution in increasing staff. This will result in increased prices and an overall improvement in per-yard profitability. But growing headcounts will lag behind these profit improvements as the industry tries to grow itself out of its operating losses.
Remember, GDP growth is predicted to be as high as 4-4.5% in 2010, far beyond the contraction we have seen this year. We predict a measurable improvement in volumes next year, particularly as more stimulus projects start to kick in. But sadly, unemployment will linger, and it could be five years or more before our industry returns to full employment we witnessed just three short years ago.
Pierre Villere is president and managing partner of Allen-Villere Partners. Eemail@example.com telephone 985-727-4310. Visitwww.allenvillere.com.