Steel Mills

HARDI/ITR Construction Forecast (Part 1)

Written by Sandy Williams

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 quarterly 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. This forecast was originally produced in mid April for HARDI members.

Alan Beaulieu, one of the founders of the Institute for Trend Research and the Chief Economist for HARDI will be a keynote speaker at this year’s Steel Summit Conference in Atlanta.

Today’s issue will cover the general economic overview as well as forecasts for the Northeast, Mid-Atlantic, and Southeastern Region.

Economic Overview

Consumer purchase and industrial production continues to grow the U.S. economy. The rate of growth for industrial production is beginning to slow, as predicted, but is still on a solid upward trajectory into mid-2016, according to ITR Economics. The strong U.S. dollar is both a benefit and threat to the American economy. A strong dollar keeps inflation low and makes traveling outside the U.S. less expensive. The problem is in the extremities, says ITR. The disproportionate strength of the dollar against the Euro and other foreign currency has made the U.S. a destination for exports that are replacing domestic production. ITR says the US dollar needs to move lower to control imports and kick off recovery to the oil and gas industry. Adjustment to the exchange rate will occur when ECB quantitative easing stems the deflation threat in the EU, overproduction of oil is addressed, and Asia and Europe are ensconced in early business cycle recovery. In addition, the U.S. Federal Reserve will need to tighten monetary policy and raise interest rates.

For now, says ITR, the residential market will continue to benefit from higher wages and employment levels, low interest rates, and more disposable income. Commercial and residential construction growth is expected to slow through most of 2015 but will also limit upside pricing pressure. Home improvement construction dropped 18.7 percent annually from the previous year but the bottom is near and indications are positive for improvement as the year progresses.


Annual housing construction permits are up 1.9 percent from a year ago. ITR expects permits in the region to dip below year-ago-levels within the next few months before returning to growth in the latter half of 2015 and into 2016. A harsh winter froze housing market activity in the first quarter. In contrast, home prices increased across the Northeast due to increased demand and tight inventories. The rate of price increase is expected to slow as spring construction picks up. ITR has revised its forecast for housing construction growth downward to 7 percent in 2015, with an increase to 18.1 percent in 2016.

Commercial construction spending is up 6.4 percent y/y in the Northeast, but slowing is expected based on an increase of just 0.6 percent on a quarterly basis. Flat to mildly recessionary activity in total spending is predicted through mid-year with some volatility in the second half. An increase in construction spending is anticipated in 2015. New Hampshire has shown the strongest growth in the region with New York (except NYC) and Rhode Island still in recession. The 2015 forecast was revised downward to -4.2 percent, primarily due to weakness in New York state. New construction opportunities are expected in 2016 with a forecast of 25.8 percent.


Housing permits leveled off in late 2014 and weakened in the first part of 2015. Although permits are up 1.9 percent y/y, ITR lowered the forecast for housing construction to -1.2 percent for 2015 due to the impact of the severe winter on the industry. All the Mid-Atlantic States are in slower growth or recession in the housing construction business cycle. Washington DC permits were down 17.2 percent y/y but still had a strong February when compared with the unusually high numbers from February 2014. Rapidly rising home prices, says ITR, support a still healthy market and a stronger outlook for 2016. Housing construction growth for the Mid-Atlantic is forecast at 13.4 percent for 2016.

Commercial construction recovered after a weak first half in 2014. The Mid-Atlantic area saw an 11.7 percent y/y spike in construction activity in March but a decline is expected in the second half of 2015. Fewer but more expensive projects are underway or planned. Competition for new projects is expected to be fierce in the near term. The commercial construction growth forecast for 2015 is -7.8 percent with a strong return in 2016 at 24.2 percent.


ITR gives the Southeast region high marks for housing construction. Permits have risen at a 2.7 percent annual rate of growth but are at their highest level since 2008. ITR revised its forecast upward to 11.3 percent for 2016 and is expecting double digit growth in 2016. The only state to see a decline in permits since the November HARD/ITR report was Virginia and the Southeast market is showing a steady growth pattern. Home prices are rising but mortgage rates have stayed flat. ITR suggests that anticipated rate hikes may stimulate consumer buying. The growth forecast for 2016 is 10.3 percent.

Commercial construction has been rising at an accelerated rate in the Southeast and is expected to peak in June with a growth rate of 44.9 percent. The rate of growth is unsustainable, says ITR, but a drop is not expected, just a slower rate for the latter half of 2015 into 2016. Total value of projects has increased with construction growing in a broad range of sectors. Lower costs in the Southeast are attractive to companies looking to relocate. Gulf Coast states are benefiting from growth in oil/gas refineries and chemical plants which bring in employees and more commercial construction. Commercial construction growth for the Southeast is forecast at 21.4 percent for 2015 and 10.7 percent for 2016.

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