Digging It

Darwin Smith is probably not a name with which you are familiar.  He once said, “I can’t imagine anyone not liking to drive a backhoe.”  I couldn’t agree more.  If you’re wondering why he felt so strongly about this avocation, allow me to enlighten you with another bit of wisdom from this gentleman.  “I did some of my best thinking moving dirt or rocks.”  All you Baby Boomers out there should be grateful that this man found inspiration where he did as it led to his taking control of a declining paper company and turning it into a giant and dominant force in the adult diaper market with Depends.

When I read part of his life’s story it got me thinking about a couple of things.  First, I had better add Depends to the grocery list.  Second, construction requires backhoes and backhoes require industrial manufacturing.  That in turn requires orders which are the ultimate sign of confidence in our economy’s future.  Thus here at Atlas we occasionally turn to the American Institute of Architects’ (AIA) Architecture Billings Index as one of our forward- looking indicators.  Construction, especially the nonresidential variety, is a long-leading indicator since such projects can be expected to take years from start to finish and mega-bucks spent in the process.  Any firm planning such a move must have strong convictions about a robust economic environment which has legs and developers must become convinced that demand is improving and sustainable.  We are encouraged that the AIA is now reporting their billings index continues pointing toward expansion.  Its commercial and industrial component is hitting a ten-month high.  Further, inquiries for commercial building projects are rising, now approaching a five-year high.

The ramifications of this are very positive for American manufacturing and the huge variety of jobs it can generate.  Obviously the process of building big things like roads, other elements of our infrastructure or office high-rises demands a large amount of labor and ancillary support services, but the building process itself uses plenty of raw materials as well.  Orders for familiar components like lumber, rebar and concrete should be forthcoming, but quite a bit more is called for as well.  Construction equipment, like the aforementioned backhoe, or tractors, graders and so forth, spring to mind.  These will require tires and sophisticated instrumentation.  In addition, construction projects may need other big stuff such as scaffolding, aerial work platforms, cranes, heating and air conditioning systems.  Don’t forget the small things as well, special fasteners, custom nuts and bolts, wiring, on and on.  Given that the AIA’s billing index tends to front-run actual improvements in building activity by roughly a year or so, we can expect to see a positive effect follow this report which will manifest in further job creation down the road.