Economy

HARDI/ITR Quarterly Construction Forecast (Part 1)

October 20, 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.

Today’s issue will cover the general economic overview as well as forecasts for the Northeastern, Mid-Atlantic, and Southeastern Region.

Economic Overview – ITR Expects Decline in mid-2014 with March 2015 as Nadir in Cycle

Economic growth for the US shows positive signs. Employment is improving although many new jobs are part-time or low income. Inflation and commodity prices are stable and the Institute for Trend Research (ITR) expects this “disinflationary trend” to continue for the next 12 months, citing as reasons slower growth in China and waning demand for raw materials.

The growth rate of the U.S. Industrial Production Index is slowing and ITR predicts 2013 production will be 2.6 percent above 2012 levels. A noticeable decline is expected for mid-2014 with March 2015 targeted for the next business cycle low.

The ITR economists expect interest rates to be low through 2014 with a monetary stimulus pushing a consumer-led uptick in the business cycle beginning mid-2015 and continuing through 2016.

Galvanized steel prices are moving sideways and HARDI expects little upward price pressure over the next 12 months. Copper prices are expected to remain weak through 2014.

Home improvement and retail sales are both picking up and are expected to continue through 2014.

Northeastern Region

Housing construction permits in the Northeast are 23.5 percent above 2012 levels and continuing to rise. Connecticut has seen the strongest annual year-over-year growth with permits reach 66.5 percent in August. HARDI/ITR predict growth in the Northeast at 24.9 percent for 2013, falling to -0.2 percent in 2014 and climbing back up to 21.6 percent in 2015.

Commercial construction pulled out of recession in the Northeast due to a strong August. Permit values in the past year rose 3.0 percent suggesting more building opportunities will be available in the Northeast. Construction activity for office and bank buildings is growing on rising rents, with Boston rents now the fifth highest in the country. Store, restaurant, and hotel construction is down. ITR forecasts commercial construction growth of 4.1 percent for 2013, 3.8 percent in 2014 and 7.2 percent in 2015.

Mid-Atlantic Region

Mid-Atlantic housing permits gained 25 percent over the past twelve months but HARDI expects the momentum to slow as year-end nears. Rising property values are encouraging home renovation activity.

Strong permit growth in July and August prompted ITR to revise its 2013 growth forecast upwards to 21.7 percent for the region with softening to 0.9 percent in 2014. Growth should pick up again in 2015 with an ITR forecast of 17.4 percent.

The commercial construction market is improving in the Mid-Atlantic region. To date the region reports $10.9 billion of annual construction activity–26.3 percent above last year. Improvement is expected to continue through the end of the year. Construction activity is up for office and bank construction as well as for warehouses. ITR forecasts growth in the region at 32.7 percent for 2013 with activity receding to -16.1 percent in 2014. Construction should begin to rebound to 1.4 percent by the end of 2015.

Southeastern Region

Permits for housing construction in the Southeast are 29.7 percent above last year but the rate of growth is slowing for most states in the region other than Georgia which continues to accelerate. Home price growth is slowing in the region except in Florida which is continuing to rise at quickening pace. The ITR forecast for 2013 is 16.3 percent growth falling to -3.0 percent in 2014. As in other regions, 2015 will bring improvement with the forecast at 15.9 percent.

Commercial construction has been growing mildly in the Southeast says ITR. Tourism has increased along with the economy and hotel and motel construction has been steadily rising. Gains are being led by Alabama, Virginia and Florida while commercial construction in Georgia and the Carolinas is still below 2012 levels. Most construction sectors are struggling including office building which is down 7.6 percent from a year ago. Florida new projects are beginning to falter and the state is expected to enter the slower growth cycle soon. ITR forecasts 2013 commercial construction growth for the region will be 13.7 percent above 2012 levels. Activity will continue to fall in 2014 to an annual growth rate of 6.5 percent and flatten in the Southeast to -0.3 percent in 2015.