Steel Mills
HARDI/ITR Construction Forecast (Part 2)
Written by Sandy Williams
May 19, 2015
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
Housing construction was lackluster at the beginning of 2015 with permits at the end of first quarter 7.7 percent below year ago levels. Annual permits are expected to be flat through mid 2015. The pace will increase late in the year and continue through the first half of 2016. Home prices picked up the pace in fourth quarter but slowed during first quarter 2015. ITR Economics revised its housing construction outlook for 2015 downward to 5.2 percent growth. The growth rate for 2016 is forecast at 8.8 percent.
Construction spending in the Great Lakes region reached a multi-year high at $6.1 billion as of February 2015 and has increased another 44.6 percent in the past three months. Warehouse and office and bank construction have performed well in the past year says ITR. The only struggling sector is parking garage and automotive construction which fell 7.4 percent from 2014 levels. ITR expects commercial construction in the region to continue to rise in the near term, followed by lower levels for the remainder of 2015 before picking again in 2015. The 2015 growth forecast is 0.2 percent and 11.8 percent for 2016.
Central
Housing permits in the Central region are expected to plateau in spring before heading higher in the second half of 2015 and continuing through 2016. Illinois and Missouri are showing the most strength in the region, with permits up 21.5 percent and 21.6 percent in the past year, respectively. Housing prices have moderated in most of the Central region with North Dakota experiencing the highest gain of 8.4 percent in Q1 y/y. The housing forecast for 2015 is 7.0 percent with growth increasing in 2016 to 20.3 percent.
Commercial construction has been robust in the Central region but ITR expects spending to slow in the second half before rising throughout 2016. Office construction has been especially strong, up 91.6 percent in the past year at $5.2 billion. The rate is not sustainable says ITR and slower growth is expected imminently. The commercial construction forecast for the region is for 0.7 percent growth in 2015 followed by 14.4 percent in 2016.
Southwest
ITR expects annual housing permits to reach 223,700 by the end of 2014 and 249,500 by the end of 2016. Permits issuance has been on the high end of the ITR forecast with only New Mexico down for the year. Home prices have increased at a steady pace in the past few quarters except Arkansas and Oklahoma where permits and prices have accelerated. Housing construction growth in the region is forecast at 8.7 percent for 2015 and 11.5 percent for 2016.
Although still strong, commercial construction has been trending below ITR’s forecast resulting in a downward revision for 2015. Momentum has slowed in the region and commercial projects have gone from large scale projects to smaller ones. Arkansas, which struggled in 2013 and 2014, now has the most robust growth in the region, up 96.3 percent in the past 12 months to its highest level since 2009. (Note: one of the large projects underway in Arkansas is construction of Big River Steel in Osceola.) The ITR forecast calls for 17.6 percent annual growth for both 2015 and 2016.
West
Housing construction is accelerating in the West with permits expected to rise throughout most of 2015. Growth is expected to weaken late in the year and then rebound in 2016. The coastal region (Washington, Oregon and California) has outpaced the rest of the region with growth above ITR expectations. Inland states of Idaho, Arizona and Utah are decelerating with permit rates are below 2014 levels. Home prices have slowed in the region which is good news for homebuyers that were priced out of the market. The housing construction forecast is 6.7 percent for 2015 and 11.9 percent for 2016.
Commercial construction has been strong in the first part of 2015 in the Western region. Construction spending is expected to end the year near $18.4 billion and be even higher in 2016. ITR forecasts growth for 2015 at 27.4 percent and 4.8 percent in 2016.
Alan Beaulieu, principal of the Institute for Trend Research is the chief economist for HARDI. Dr. Beaulieu will be one of the Keynote Speakers at this year’s Steel Summit Conference on September 1 & 2, 2015 in Atlanta, Georgia.
Sandy Williams
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