TRG | The Bottom Line – 1/7

New Year but same themes are carrying into 2022. TRG published our Q4’21 Heavy Materials and Q4’21 Contractor & Surety surveys this week. What came through loud and clearly on both surveys is visibility on volumes/projects remains strong, and the pipelines beyond 2022 is prospective. On the commercial side, data centers, warehouses, healthcare and education are driving demand, residential (new and R&R) remains strong, and all eyes will be focused on state DOT letting activity in 2022 with the passage of IIJA in November 2021. For the heavy materials industry, the combined factors of greater volume visibility from the passage of IIJA and private construction working, in addition to the building realities of inflation, has supported an acceleration of pricing. While aggregate pricing may still end up low to mid-single digits for the full year, pricing in the closing months of 2021 were up mid to high-single digits in many key markets. The rate of material inflation may be expected to abate but other costs (like labor) should remain elevated. As TRG outlined in our 2022 thought piece (TRG 2022 Investing Themes: Heading South? We’re Hiring, published 12/17/21), we believe “labor will be the new weather” in 2022, with labor being a scapegoat for fundamental problems. Expect a divergence in company performance within industries based on abilities to manage labor availability and cost management.