Steel Products

HARDI/ITR Construction Forecast (Part 2)

January 23, 2013

Steel Market Update is a member of an association connected to the construction industry called HARDI. HARDI stands for Heating, Air-conditioning & Refrigeration Distributors International. HARDI and The Institute for Trend Research (ITR), an economic forecasting company, work together to gather economic data to provide a forecast to the HARDI members located in the United States and Canada. The information shared in our newsletter is only part of a much larger package seen by participating HARDI member companies.

In our last issue we covered forecasts for the Northeast, Mid-Atlantic, and Southeastern Region. Today we will cover the Great Lakes, Central, Southwestern and Western regions.

Great Lakes Region

Housing Construction: Housing permits as of November in the fourth quarter of 2012 were at the highest level in three and a half years. All of the states in the region showed solid growth as reflected by new housing permits. Foreclosures are still a problem in parts of the region, especially in Ohio, Michigan and Indiana.

ITR predicts housing construction growth will accelerate through the third quarter of 2013 and begin to falter around the fourth quarter with some declines through 2014. Annual growth rate for 2012 is an estimated 25.8 percent, followed by 15.5 percent in 2013, and -15 percent in 2014.

Commercial Construction: Annual growth rates were mixed in the region. Indiana and Western Pennsylvania are growing at the highest rates and Michigan is likely to see growth due to Ford’s modernization of six plants over the next two years. Kentucky is still in a recession trend while Ohio looked flat in mid-fourth quarter. West Virginia had a -70.6 percent annual growth rate but is beginning to recover somewhat.

ITR predicts commercial construction will rise through 2014 but slow by late 2013. This year will look good compared to the weak 2012 but the industry is not expected to break $5 billion before 2015. Annual growth rate is predicted at 10.9 percent for 2013 compared to an estimated 2.7 percent for 2012. The rate will be lower in 2014 at 3.1 percent.

Central Region

Housing Construction: All states in the region showed double digit annual growth in housing permits in mid-fourth quarter except for Wisconsin at 9.6 percent and Wyoming at -4.5 percent. Home prices are stable or appreciating in the area as well and are expected to push up demand for new home construction in 2013.

ITR expects the annual rate for 2013 to be slower than 2012, at 8.3 percent versus an estimated 37.4 percent. Annual growth is expected to be flat at -0.8 percent in 2014.

Commercial Construction: Commercial construction was up 42.6 percent in November compared to a year ago. Most of the states are expanding with the exception of Minnesota, South Dakota, Wisconsin and Wyoming which are expected to recover but at a slower pace than the rest of the region.

The annual growth rate for 2012 was an estimated 22.5 percent. ITR predicts growth will continue in the region but slower in 2013 and 2014, at 7.9 percent and 3.4 percent, respectively.

Southwestern Region

Housing Construction: Housing permits rose 32.4 percent in November 2012 from levels in 2011 and exceeded ITR predictions for the second half of the year. Housing construction levels are expected to be around 190,000 a year in 2013 and 2014, compared to previous expectations of around 175,000 in the last report.

Growth is expected to slow in 2013 to a rate of 14.8 percent compared to an estimated 33.6 percent in 2012. Annual growth is expected to be flat in 2014 at -0.2 percent. Higher taxes and mild wage growth will contribute to the slower pace of recovery.

Commercial Construction: The Southwest had a modest growth trend in 2012, up 2.3 percent from November 2011 levels. Vacancy rates for office and retail are above normal and slow to fall. Concern over tax rates has also held back business expansion. Texas commercial construction is up 18.1 percent and has exceeded the U.S. average for the past six years.

ITR annual growth for 2012 is an estimated 8.3 percent and the market is expected to grow over the next two years with 2014 at a slower pace than 2013. Forecasts are for an annual growth rate in commercial construction of 15 percent for 2013 and 5.5 percent in 2014.

Western Region

Housing Construction: The Western Region is outpacing the U.S. in housing permits but primarily because the decline was so great during the recession. Median home prices appreciated in most of the region although prices are still well below 2008-2009 levels. Rising prices and low interest rates should stimulate home building. The number of foreclosed properties on the market is holding back annual growth rates.

ITR predicts a 5.1 percent annual growth in construction in 2013 compared to an estimated 31.9 percent in 2012. The expected recession in 2014 will not cause any severe harm to the housing market in the Western Region but the annual growth rate for 2014 will be slower at 4.6 percent.

Commercial Construction: Commercial construction growth has been mixed in the Western region. High vacancy rates in office and retail space has dampened the demand for new construction. Construction activity is likely to stem from renovations rather than building new infrastructure. Montana has seen a surge of almost 90 percent over the past 12 months as demand for hotels and motels increase along with a need to house oil and gas workers at the Bakken Oil Fields.

Overall, commercial construction for the region is down with a -6.7 estimated annual growth rate for 2012. ITR predicts 2013 to be at recession levels with a -4.3 percent annual growth rate. Construction should pick up at the end of 2013 and show a 19.6 percent gain for 2014.