Economy

HARDI/ITR Construction Forecast (Part 2)

April 24, 2014

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

Great Lakes housing construction is slowing after reaching a peak in September 2013. The year-over-year growth rate fell 0.5 percent with much of the slowdown attributed to the severe winter conditions in the Great Lakes region. ITR expects housing permit growth to be slow with some states slipping back temporarily into contraction. Home price appreciation has slowed in the region with the exception of Ohio that saw a 5.3 percent increase in home values. The growth forecast for 2014 is 2.6 percent and 11.3 percent in 2015.

Commercial construction is in recession in the Great Lakes with levels dropping in 2013 and early 2014. ITR expects some recovery by midyear before weakening in the second half. Construction has been highest in hotel and warehouse construction but has been countered by falling levels for office and store/restaurant construction. High retail vacancy rates are putting pressure on rents and new retail construction. The industry forecast for commercial construction in the Great Lakes region in 2014 is -0.8 percent followed by a rebound to 18.9 percent in 2015.

Central

Housing construction began decelerating in mid 2013 and has continued. Permits in the last three months are 0.6 percent above 2013 rates. Illinois is a bright spot in housing construction with 21.6 percent growth that is showing signs of slowing. Kansas City permits have tripled since their recession low in 2011. St. Louis permits fell 7.3 percent in the last year. Rising property values have resulted in record highs for the remodeling market which is expected to drive home improvement spending in 2014. The forecast for housing construction is -1.5 percent for 2013, improving to 21.4 percent in 2015.

Commercial construction is stable in the Central region with activity up 2.8 percent on strong office building and warehouse construction and milder store, restaurant and hotel construction. Construction activity is below year-ago levels in Illinois, Minnesota, Missouri and Wisconsin; the rest of the region is experiencing growth but at a slower pace. Construction activity is expected to be flat in 2014 but resume in 2015. The ITR forecast is -3.9 percent in 2014, followed by 7.6 percent in 2015.

Southwestern

Housing construction is slowing in the Southwest with permit levels up 8.6 percent y/y. Permit authorizations are expected to peak in the third quarter followed by mild contraction through early 2015. Rising home values in Texas are expected to boost home remodeling spending. The housing construction growth forecast is 3.5 percent in 2014 and 13.6 percent in 2015.

Commercial construction is in the slow growth phase in the Southwest and the second half of 2014 is expected to see flat-to-mild declines. A strong area in commercial construction is office and bank construction which is up 36.7 percent in the region. The ITR forecast for 2014 is -0.2 percent, followed by improvement to 8.3 percent in 2015.

West

Home construction the West has been growing steadily since 2009 but is now slowing. Fewer new homes sold and higher prices will likely result in flat to contracting levels for most Western states in 2014. Housing permits are expected to fall 2.5 percent below 2013 levels but a drop in foreclosure levels and higher home values will keep the market out of a prolonged or steep recession says ITR. The growth forecast for 2014 housing construction is -2.5 percent, rebounding to 13.8 percent in 2015.

Commercial construction is doing well in the West and with values, square footage and number of projects all strengthening in the last year. Growth rates, however, are starting to slow like other regions in the US. The ITR forecast is for a 7.4 percent growth rate in 2014, increasing to 17.3 percent in 2015.