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Recession-Proofing Construction and Building Material Companies

After record-breaking price increases and profitability in the US, uncertainty is the only sure thing about 2023.

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Recession-Proofing Construction and Building Material Companies
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After an initial collapse in early 2020, US lumber, steel, plastic, and oil prices skyrocketed. Stuck at home during lockdowns and buoyed by stimulus cash, individuals wanted to expand and upgrade their spaces. Remote work, a rapid shift to e-commerce, and infrastructure stimulus dramatically boosted commercial construction spending as well. Builders were lucky to secure key building materials at any price.

Three years later, amid ongoing economic uncertainty in the US, mortgage rates have more than doubled, housing starts and commercial construction spending have fallen from 2022 peaks, and commodity prices have softened. Parts of the construction industry are already feeling recession-like effects. It’s unclear how high the Fed will push interest rates, whether that will trigger a widespread recession, and how deep or long that downturn could be. Economists predict a more than 50% chance of a US recession within the next 12 months—a level usually only seen once a recession has already begun.

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Global Recession Watch: The Latest Data

Inflation is generally declining, but economic headwinds persist globally.

Recessions create a unique opportunity to change growth trajectories. Bain research shows companies that take advantage of downturns achieve 14% growth in earnings before interest and taxes over the following years, while companies that sit on their hands flatline for as much as a decade afterward. Winners in the construction and building material industry will use this period to plan and act around four pillars.

  • Reset the cost base. Use scale to create a sustainable cost advantage, simplify work, and retain key talent.
  • Solidify pricing. Deepen pricing intelligence and adopt strategies that minimize price cuts.
  • Strengthen customer relationships. Prioritize which customers to grow share with to emerge from a downturn stronger than before.
  • Continue to make smart investments. Have a clear, prioritized list of strategic investments and M&A to double down on strategic growth and pull back on lower priorities.
Related

The New Recession Playbook

How the best businesses are planning for the coming downturn.

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