Second Quarter Economic Indicator – A look back
As we quickly pass Q2 and move into Q3, we are starting to understand better how the year will shape up. I recently had a chance to review The Conference Board’s (TCB) website for a description of what they see ahead. TCB’s mission is to be a “member-driven think tank that delivers Trusted Insights for What’s Ahead to help our members improve performance and better serve society.” In a bullet point summary, TCB’s most recent update included:
- Real GDP rose by 2.4% in Q2 ahead of the expected 1.8% forecasted. This resulted from a weakening demand in consumer consumption being more than offset by business investment.
- Consumer consumption growth of both goods and services cooled in Q2. This trend is expected to continue for the remainder of 2023 due to three factors:
- real disposable income is down;
- pandemic excess savings are gone, and consumers are carrying historic debt levels;
- mandatory student loan repayments are set to resume.
- Business investment did more than offset the decrease in consumer spending in Q2, showing sizable spends in transportation equipment, facility structures and intellectual property products. However, this information came with a warning: TCB expects weakening consumer demand throughout the remainder of 2023, combined with high interest rates to reverse business spending trends.
A couple of examples from Q2 Miles-McClellan bidding and budgeting efforts:
Craig Richards, Vice President, “Our division originally bid a sizeable renovation project to a large, international CM firm. During Q3, 2021, the wall protection package was worth $6.7M and was removed from the scope of work due to being over budget. The package was rebid during Q2 of 2023 at $7.6M. This was a 13% increase in 18 months.”
Matt Recchiuti, Vice President, “Our team recently rebid a steel package. Our original steel package was quoted at $53,500 in February 2023, and after the project rebid in August 2023, the final (unchanged) steel package was purchased for $58,000. This is almost a 17% annualized increase in steel pricing.”
Kevin Joseph, Project Executive, “One notable and frustrating reality that my team faces is the fact that more than half of the projects we bid this past quarter were so far over budget that the project could not proceed. It seems that across various industries and types of projects, owner’s budgets have not caught up with the price increases that exist in Central Ohio. Some owners mention that they plan to wait to rebid work once prices decrease, but we have not seen any indication that this is a realistic plan.”
While at times it may feel like we are spinning our wheels with all the budgets and rebidding, we would rather provide realistic, inclusive budgets and bids then submit low numbers with the hope of winning and not failing.