What in the World Happened?

AggMan Staff | Published on May 1, 2013

After the housing bubble’s burst, will aggregate production get back on trend?

By Bill Langer

It is quite likely that everybody in the aggregate industry knows aggregate sales have been severely depressed over the past few years. This article is a simple explanation of what in the world happened. My wife, Pam, reviews every article I write for AggMan, and she is a visual person. To get this through the review process, I did some data mining and prepared this graph so she can visualize how the industry got where it is. Knowing how we got here might provide a clue for what the future has in store.

Carved-AM0513-MayproductionvsresidentalThe information on the graph is for the United States from the time period 1964 to 2012. The purple vertical bars show the seven recessions that occurred in the United States during that time. The triggers for the recessions are listed at the top of the graph.

The green line shows, in constant 2012 dollars, the total amount of money annually spent on residential construction. (Use the right-hand axis to determine billions of dollars spent.) It should come as no surprise that decreases in spending for residential construction and recessions go hand-in-hand.

The red line on the graph shows annual aggregate production in metric tons. (Use the left-hand axis to determine millions of tons produced.) It should also come as no surprise that aggregate production mimics residential construction spending, and that production decreases during recessions.

The black solid/dotted line on the graph is called a trend line. The solid part of the trend line shows the general rate of residential construction from 1965 until 1994. The dotted part of the trend line is what residential construction would have been if it continued at the 1965 to 1994 rate.

The residential construction line dips and dances along the solid part of the trend line, which is what it is suppose to do. During that 30-year period of time, dollars spent on residential construction increased a total of $180 billion, or an average of $6 billion per year.

From 1995 to 2005, residential construction went bonkers. It zoomed away from the dotted part of the trend line, increasing $325 billion, or an average of $30 billion per year. In other words, it increased at a rate of five times faster that it had during the previous 30 years.

Everything between the green line and the black dotted line represents the housing bubble. With 20-20 hindsight, it is clear that the housing bubble and the associated increase in aggregate production were unsustainable.

Starting in 2006, residential construction and aggregate production went in the dumpster, but the recent turnaround (also reflected in other economic indicators) is a bit of good news.

Pam’s response to all of this? “What does all this say about the future? Will the dollars spent on residential constuction return to something near 2005 levels, or will it be closer to what is shown by the trend line?”

My reply, “I am a geologist, not an economist. Let me consult my Magic 8 Ball.”

Bill Langer is a consulting research geologist who spent 41 years with the U.S. Geological Survey before starting his own business.

He can be reached at

Bill-Langer@researchgeologist.com

 

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