Economy

HARDI/ITR Quarterly Forecast October 2017, Part 1

October 22, 2017

Steel Market Update is a member of an association connected to the construction industry called HARDI, which stands for Heating, Air-conditioning & Refrigeration Distributors International. HARDI and economic forecasting company ITR Economics work together to gather economic data to provide a forecast to the HARDI members 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 three-month and 12-month moving averages to determine where business is within the growth cycle. Today’s issue will cover the general economic overview, as well as construction forecasts for the Northeast, Mid-Atlantic, and Southeastern Region based on data through third-quarter 2017.

Economic Overview

The overall U.S. economy is looking positive as the third quarter ends and the fourth begins. Real GDP is growing, says ITR Economics. The manufacturing and mining sectors are contributing to accelerated growth in U.S. industrial production. Electric and gas utilities production is expected to contract through the end of the year before rising year-over-year in early 2018.

U.S. consumers drive the economy and retail patterns indicate they are thriving. Total retail sales were up 3.8 percent year-over-year during the 12 months through September. Wages are up and the stock market is booming, coupled with lows in unemployment, inflation, and interest rates, as well as relatively low commodity prices. ITR’s U.S. Consumer Activity Leading Indicator suggests consumer spending will continue accelerating into early 2018.

A strong consumer benefits the housing market. At the end of August, single-family housing starts were up 9.3 percent and accelerating, while multi-family housing starts were contracting after a surge in building following the Great Recession. October data showed housing starts faltering after the hurricane disasters, but single-family authorizations continue to grow. The National Association of Home Builders said decreased production is normal after disasters, and economic fundamentals point to longer-term growth for the housing industry.

ITR Economics expects a softening in economic activity as 2019 approaches and the U.S. enters a mild recession.

Northeast

The housing industry in the Northeast moved into an accelerated growth phase since ITR’s last regional report. Permit authorizations are expected to generally rise through 2018 before declining in 2019. Home prices continue to rise in the region. ITR’s forecast was unchanged with housing construction expected to be up 15.5 percent for 2017, up 6.5 percent for 2018 and contracting to -2.6 percent in 2019.

Nonresidential construction spending was down 2.9 percent year over year in the 12 months through August, but is expected to increase in the region into early 2019. Education construction will lead growth in the next few quarters, said ITR. Nonresidential construction is generally declining in Massachusetts, Rhode Island, Vermont, New York (excluding NYC) and New Hampshire. Maine reversed to a growth phase in recent months, and Connecticut at the end of August was up 53.6 percent year-over-year. ITR revised its data upward from the last report and expects annual construction spending to be up 8.2 percent in 2017 and 6.2 percent in 2018, before contracting to -1.8 percent in 2019.

Mid-Atlantic

Housing permits in the Mid-Atlantic are rising and expected to remain on track with ITR’s last forecast. Consumer strength in 2018 should lead to permit growth before declining in 2019. Home prices in the region rose in the second quarter, but were under the national home price growth of 5.7 percent for the quarter. Property values are expected to keep on a slow but steady pace to approach pre-recession levels, said ITR. The housing construction forecast is +11.6 percent year-over-year in 2017, -0.8 percent in 2018, and -1.0 percent in 2019.

Nonresidential construction spending in the Mid-Atlantic declined in all of the states of the Mid-Atlantic on a year-over-year basis and is expected to persist into early 2018. Medical construction was the only sector to stand out with a 68.2 percent increase, which was offset by the education, commercial government and retail sectors. Construction will improve into mid-2019 before resuming a decline for the second half of the year. The nonresidential construction forecast remained unchanged at a 2.1 percent increase for 2017, 9.0 percent for 2018, and a softer increase of 3.8 percent for 2019.

Southeast

Housing permits in the 12 months through August were up 6.9 percent year over year and are expected to continue to rise through the end of 2018. Single-family permits have been robust, but multi-family permits are down. Florida housing construction will likely show a pullback in the September data due to hurricane impact. The state leading index, which looks at state GDP, looks healthy across most of the region. The construction forecast by ITR shows a 9.9 percent increase for 2017, -1.2 percent in 2018, and 1.7 percent in 2019.

Nonresidential construction spending is expected to decline into early 2018 before rising into mid-2019. The region will soften again in the back half of 2019 as the mild recession kicks in. Florida’s decline is expected to persist and, coupled with decreasing activity in the rest of the Southeast, the region as a whole will move into contraction over the coming months. The annual nonresidential construction forecast by ITR stands at -11.3 percent for 2017, +13.9 percent for 2018, and +4.7 percent in 2019.