Steel Products

HARDI/ITR Quarterly Construction Forecast (Part 2)

August 4, 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 noted that ITR has revised its economic outlook for 2014—raising its prediction for the downside of the business cycle to a much softer 1.2 percent decline from an original forecast of a 3.3 percent decline. Having covered the Northeast, Mid-Atlantic, and Southeastern Region, this issue will present the forecasts for the Great Lakes, Central, Southwestern and Western regions.

Great Lakes

ITR places the Great Lakes region in “accelerated growth” with more than 50,000 housing permits reached in May in a 12 month moving total. Permit issuance will continue to make gains this year with slowing seen toward the final months as the economy moves toward the downside of the business cycle. Declining populations and weakening economy in 2014 are expected to put permit levels back into recession. Most states in the region are at their peak growth rate for permits except for Western Pennsylvania where oil and gas drilling is positively impacting the local economy. Housing prices have been near record highs in Kentucky and West Virginia where the housing market downturn had the least effect five years ago. Slower growth is expected until recession hits in mid 2014. The housing construction growth rate is expected to be at 15.5 percent in 2013 then plunging to -15.0 percent in mid-2014.

Commercial construction has been declining and is now classified as “slower growth.” The second half of 2013 is expected to be better than the second quarter of 2013 as a mild growth trend kicks in and continues through mid-year 2014. Western Pennsylvania’s 63.8 percent jump in construction is attributed to a strong economy, while Kentucky and West Virginia are at their lowest commercial construction levels in 20 years. A 15.9 percent gain in commercial construction is forecast for 2013, falling to 3.7 percent in 2014.

Central Region

Housing permits have been steadily growing in the Central region and are at their highest level in four years. Annual permits are up 35.8 percent year-over-year and are expected to level off in the second half of the year. All states except Wyoming experienced y/y improvement. Minneapolis is expected to show strength in multifamily construction due to high apartment rent growth and low vacancy rates. Home prices are improving in all states except Illinois and Wisconsin which are still near the same levels as a year ago. Illinois has the second highest foreclosure rate in the nation. Housing construction is expected to show a growth rate of 8.3 percent for 2013, falling to -0.8 percent in 2014 before an upswing in 2015.

Commercial construction is showing mixed results in the region. Colorado, Kansas, Missouri and Nebraska are expanding while Minnesota, South Dakota and Wyoming are declining. Oil and gas drilling in North Dakota has stimulated market demand for other construction services. The forecast is for a 7.9 percent growth rate in commercial construction for 2013, dropping down to 0.9 percent in 2014.

Southwestern Region

Housing construction in the Southwest has been rising at a healthy pace over the past 12 months with higher home prices and construction levels in every state. Slower growth is expected for the second half of the year with an annual growth rate of 14.8 percent forecast for 2013. A drop to -0.2 percent is expected in 2014.

Commercial construction is at 45 month high and up 21.5 percent over last year, according to ITR data. Additional gains are expected this year but growth will continue to be uneven over regions and industries. The forecast for 2013 was reduced due to a weak March and is forecast at 19.7 percent for 2013. Commercial construction in the Southwest will fall in 2014, along with the rest of the nation, and is forecast at a growth rate of 1.6 percent.

Western Region

Housing construction has slowed somewhat in the West but the year-over-year growth rate of housing permits is at a strong 37.1 percent. Foreclosures are down across the region and less vacant and stressed homes are supporting new construction and higher prices. Pockets of recession are still found in Arizona and Nevada and Las Vegas home prices are still less than half of their average value in 2005. The housing forecast has held firm at a 23.7 percent growth rate for 2013, falling to -2.5 percent in 2014.

Although five of its states remain at recession levels for commercial construction, improving conditions are forecast for the Western region. ITR has raised its forecast to 3.6 percent growth for 2013, with an increase to 7.1 percent in 2014.