Economy

HARDI/ITR Quarterly Forecast April 2018, Part 2

May 1, 2018

Economic growth is expected to continue in 2018 followed by a mild recession in 2019, says ITR Economics. Concern over looming U.S. tariffs on aluminum and steel, as well as retaliatory Chinese tariffs, aligns with the HARDI/ITR quarterly forecast of macroeconomic deceleration in the U.S. economy late in 2018.

Steel Market Update is a member of an association connected to the construction industry called HARDI, the Heating, Air-conditioning & Refrigeration Distributors International. HARDI and ITR Economics, an economic forecasting company, 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 a 3-month and 12-month moving average to determine where business is within the growth cycle. Our last issue covered the general economic overview, as well as construction forecasts for the Northeast, Mid-Atlantic, and Southeastern regions. Today, we will cover the Great Lakes, Central, Southwestern and Western regions.

Great Lakes

Housing permits in the Great Lakes are even with or below year-ago levels as of the end of February. Michigan and West Virginia permit authorizations declined mildly during the period while Kentucky, down 2.4 percent, plateaued. Slowing of authorizations was seen in Indiana, Ohio was flat, and Pennsylvania accelerated. Home prices accelerated across the region except in West Virginia, which was the only state to have inventory higher on a year-over-year basis. The ITR economics forecast was unchanged for the April report. The forecast for residential housing construction is 9.2 percent growth in 2018, followed by a 9.7 percent decline in 2019, and returning to positive growth of 4.0 percent in 2020.

Nonresidential construction spending in the 12 months through February was down 13.2 percent year-over-year to $19.2 billion. ITR reports construction has plateaued in recent months as the market recovers. Commercial and government construction are the bright spots in the region, growing at accelerated paces of 8.5 percent and 9.8 percent, respectively. Ohio is the only state showing accelerated growth, up 2.3 percent. The forecast for the year indicates 23.6 percent growth in 2018, a decline of 3.2 percent in 2019, and up again at 13.7 percent in 2020.

Central

Permit authorizations have slipped in the Central region but the pace is slowly rising. About half of the states in the region are below their year-ago levels. Although most of the region is either slowing or in retraction from last year, permits in Colorado and Wyoming are rising. Home prices rose across the region, but ITR warns that the high agriculture region may be exposed to risk from Chinese tariffs on products like corn, wheat and sorghum, which could in turn negatively affect incomes and home buying. The Central forecast calls for 2.2 percent growth in 2018, -1.4 percent in 2019 and 7.7 percent in 2020.

Nonresidential construction spending grew 8.1 percent in the 12 months through February. ITR expects construction will enter a brief recession in the coming months before rising into early 2019. Construction will be relatively flat and then in recession during most of 2020. The forecast is 5.4 percent growth in 2018, -2.4 percent in 2019 and -4.6 percent in 2020.

Southwest

Although housing permit authorizations plateaued in recent months in the Southwest, ITR expects growth will persist through the rest of 2018. Single-family permits are outpacing multi-family in the region. ITR expects rising oil prices in the oil industry region to contribute to housing growth. Home prices grew across the region with Louisiana on the bottom range with a 2.7 percent increase. Housing inventory rose in the Southwest, which could slow pricing in 2018. ITR Economics forecasts 8.5 percent growth for 2018, -1.4 percent in 2019 and 8.2 percent in 2020.

Nonresidential construction spending fell 15.6 percent year-over-year in the 12 months through February. All five construction segments declined in the region. Only Oklahoma is showing expansion on a year-over-year basis, but that too is slowing. The nonresidential forecast for the Southwest shows construction up 14.5 percent in 2018, 7.3 percent in 2019 and 1.5 percent in 2020. The slowing in 2020 will be due to the U.S. macroeconomy recession expected in 2019.

West

The West is showing strong acceleration in housing permit growth. Single- and multi-family homes are expanding at double-digit paces of 14.7 percent and 15.3 percent, respectively. Tight inventory in the region pushed home prices up in the fourth quarter. Inventory is lower only in the Northeast, but the region has the strongest addition of new housing to the market. Overall, ITR considers the housing market to be very healthy in the Western region. The coming recession will cause a decline in permits in 2019. The housing forecast is for 5.6 percent growth in 2018, -1.6 percent in 2019 and 9.9 percent in 2020.

Nonresidential construction spending fell 13.8 percent in the 12 months through February, but is expected to rise by the third quarter and continue growth into 2020. ITR revised its forecast downward slightly due to construction data. The forecast is now 5.5 percent growth for 2018, 15.3 percent for 2019 and -2.3 percent in 2020.