Steel Mills

HARDI/ITR Quarterly Forecast April 2016, Part 1

April 24, 2016

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.

ITR looks at data using a 3 month and 12 month moving average to determine where business is within the growth cycle. Today’s issue will cover the general economic overview as well as forecasts for the Northeast, Mid-Atlantic, and Southeastern Region based on data as of April 2016.

Economic Overview

HARDI/ITR is expecting a strong U.S. economy in late 2016. In the past months economic data has positive, with most indicators showing improving trends such as the U.S. Manufacturing Production Index, U.S. Manufacturing Capacity Utilization Rate, and Retail sales. The Purchasing Managers Index continues to show a prolonged and statistically significant rise. The U.S. Materials and Components for the Construction Producer Price Index was down 0.7 percent year over year in March but prices are expected to firm toward the middle year. Inflationary pressure will build in the latter part of 2016 translating into higher construction costs for the second half of the year. Price increases have been noted in oil, base metals, and other commodities. Short term interest rates were at 0.55 percent at the end of March. Commercial lending rates will move modestly upward during 2016. Personal income growth slowed in late 2015 and was reflected in slower growth in remodeling expenditures. ITR said “the imperative word there is growth, the remodeling market will expand in 2016, driven by gains in overall employment and consistent wage growth for the consumer.”

Northeast

Residential construction has been growing in the Northeast region with housing permits authorizations increasing by mostly double digits in recent months. Growth has been highest in New York and slowest in New Hampshire. During fourth quarter home prices accelerated the most in Maine, Massachusetts and Rhode Island and slowed in the rest of the region. Permits are expected to drop in second quarter 2016. The housing construction forecast calls for permits to finish 2016 48.4 percent below the 2015 level. Growth is expected to return in the second half of 2017 ending 22.1 percent above 2016.

Commercial construction is in Phase B, accelerating growth, growing 5 percent in February for the region on a 12 month moving trend basis to $4.8 billion. Vermont, Massachusetts and New Hampshire, however, are contracting while the rest of the region is enjoying double digit growth. The forecast is for commercial construction to grow 16.3 percent in 2016, flattening in 2017, ending the year +1.0 percent.

Mid-Atlantic

Housing permits on a 12MMT rose to 106.5 units in February. ITR expects activity to drop off in second quarter and normalize to the 12 month trend seen in 2014. The drop off is due to New York City’s unsustainable growth that occurred last year as contractors rushed to beat the 2015 expiration of a tax break. Home prices in the Mid-Atlantic rose in most of the region in fourth quarter 2015. Permits for 2016 are expected to be 20.7 percent below 2015 levels and gain strength in 2017, finishing 11.6 percent above 2016.

Commercial construction gained 29.7 percent in 2015 but is expected to decline in second quarter 2016. Large projects are currently driving growth in New York City and the District of Columbia. Despite gains in Q1, ITR forecasts declining commercial construction growth through the first half of 2016 ending the year at -9.9 percent from 2015 levels. Construction will begin recovering by the end of the year resulting in a 6.6 percent gain for 2017.

Southeastern

The Southeast has one of the strongest residential markets in the country with permit authorizations in the 12 months through February up 17.6 percent from the prior year. Permits have slowed in the past three months to 12.7 percent but ITR expects a double-digit pace throughout 2016 before slowing in the second half of 2017. The growth is inconsistent at the state level with North Carolina at the bottom and Tennessee accelerating at a 44.1 percent growth rate in the 12 months through February. Home prices are up across the region with Alabama the least robust at 0.9 percent. The ITR forecast calls for residential construction permit growth in 2016 to exceed 2015 by 11.8 percent and end 2017 up 8.8 percent.

Commercial construction has transitioned to Phase D, Recession in the Southeast as ITR anticipated. Spending over the past 12 months through February declined 4.3 percent to $14.6 billion. Construction is expected to hit a 12 month low in mid-2016 and accelerate into the second half of 2017 and then moderate through late 2017. The commercial forecast is 2.9 percent growth in 2016 followed by 13.3 percent for 2017.