TRG | The Bottom Line – 8/5

Now well into Q2’22 earnings season, the current non-residential construction outlook is starting to feel a little like the ending of a certain 1960’s Spaghetti Western. TRG collected feedback from the field, economic data and increasing interest rates are piling up into three distinct economic buckets that are staring each other down. Two of the buckets are vying to shift non-residential from continued growth while the third is planted on firm ground. TRG’s analysts are chewing their nails wondering how this standoff is going to end. If it were not for extraordinary material inflation and the Federal Reserve’s break-neck action, TRG would argue that “The Good” stood a solid chance of prevailing in this stand-off. The rapid increase in interest rates, however, could take weak or poorly developed non-residential projects off the table as developers and lenders rethink their proformas. That said, the strong need for additional non-residential projects, particularly in states with high inbound migration, could counteract pull back elsewhere. Going back to that 1960’s Western, TRG is going to hold out and see who blinks first before changing our 2022 non-residential outlook, we are holding to Q1’22’s up 2 to 5%.