HARDI/ITR Construction Forecast (Part 2)

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

Housing construction: Housing permits increased 24.9 percent in the past twelve months ending in November. All states in the Great Lakes region are showing positive growth with Ohio permits advancing at the fastest rate. Permit issuance is expected to remain stable through 2014 but the pace of growth will be slower. ITR suggests watching quarterly trends for indicators of changes in the business cycle. Home prices continue to improve throughout the region with home prices in Michigan rising at double the rate of other states in the Great Lakes area. ITR forecasts housing construction will continue to grow at a slower pace throughout this year and accelerate in 2015. The growth rate for 2014 is expected to be 2.6 percent followed by 11.3 percent growth in 2015.

Commercial construction: Great Lakes commercial construction was flat through most of 2013 but began to show improvement near the end of 2013 prompting optimism for brief cyclic growth in early 2014. Warehouse, store and restaurant construction has put Kentucky in the lead at 44.2 percent growth year-over-year. Indiana and Michigan are also experiencing positive growth but Ohio, Pennsylvania, and West Virginia are trailing year-ago levels. ITR expects commercial construction to improve mildly in the first half of 2014, stalling near the end of the year and into early 2015 before strengthening in the second half of 2015. Industry growth is forecast at -0.8 percent for 2014 and 18.9 percent in 2015.

Central

Housing construction: Housing permit growth in the Central region reached a high in January 2013 and has been easing since then. North Dakota is an exception with oil and gas development bolstering housing construction. The Colorado housing market was at an 8-year high in November with year-over-year growth at 435.3 percent and expectations of continued solid gains in the first part of 2014. Increasing home prices are driving permit growth. ITR expects housing construction to soften late in the year into early 2015 followed by renewed strength for the rest of the year. The industry forecast is for -1.5 percent growth in 2014 jumping to 21.4 percent in 2015.

Commercial construction: The Dakotas, Nebraska and Colorado experienced strong annual growth rates in November. ITR expects commercial construction to remain at current levels through most of 2014 with a possible slight rise in activity early in the year and a second rise in mid-2015. The commercial construction annual growth forecast for 2014 is 0.9 percent and 7.6 percent for 2014.
Southwest

Housing construction: The Southwest is expected to show gains in housing construction over the next two years with slight weakening near the end of 2014 and into early 2015. Most states are showing some slowing in the pace of permit issuance. Arkansas is the weakest in the region with permits down 3.5 percent as of November on a year-over-year basis. Home prices are rising throughout the region and especially in Dallas, but ITR expects a cooling as permit growth begins to slow. The annual growth rate for 2014 is forecast at 3.5 percent and 13.6 percent for 2015.

Commercial construction: New projects have increased in value by 26.6 percent in the 12 months preceding November. ITR expects industry gains for early 2014 with softening in 2015. Oklahoma construction activity jumped 145 percent in the last three months on the strength of large scale projects and renovations. Project activity is also up in Louisiana, Oklahoma and Texas. Annual growth for 2014 is forecast at 1.6 percent and -4.4 percent for 2015.

West

Permits in November were above year-ago level in all states including Hawaii, but the pace of growth is beginning to slow down says ITR. The West will follow the other US regions with a slow down near the end of the year with renewed growth in 2015 Home prices have been on the rise in the West but will likely increase at a slower rate as the housing market weakens in the region. The annual growth rate for housing construction is expected to fall to -2.5 percent in 2014 and reverse course to 13.8 percent in 2015.

Commercial construction is the West took an astonishing leap in November to a year-over-year increase of 332.0 percent, necessitating an upward revision to the ITR forecast. The jump came from projects in Alaska, Arizona and California. California gains in November accounted for 62.7 percent of the region’s gain. ITR expects commercial construction to continue an upward trend in the West over the next two years with just a mild correction in late 2014. The anticipated annual growth for 2014 is 7.4 percent and 17.3 percent for 2015.