Steel Mills

HARDI/ITR Quarterly Forecast 1st Quarter 2016, Part 2

March 22, 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.

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

Residential: Housing permit authorizations were strong in the fourth quarter of 2015 due to milder than usual weather. Permits surged 83.2 percent in November for the largest month-over-month gain on record. The declining coal industry is having a negative effect on the West Virginia economy, providing little incentive for new construction. Home prices generally rose across the region with the exception of West Virginia. ITR revised its residential housing forecast upward to 5.4 percent for 2016 and 12.1 percent.

Commercial: Commercial construction activity is not seeing the same strength as residential. Indiana, Michigan, and Pennsylvania construction fell by double digit percentage in November. Kentucky is leading the region in growth, expanding 20.2 percent in the 12 months ending in November. Commercial construction expected to start growing in the second half of the year. ITR reports some growth in warehouses and industrial while light commercial construction is struggling. ITR advises to expect an extremely competitive market in first half of 2016, followed by improving activity in the second half. Commercial construction is expected to grow by 16.3 percent in 2015 and 3.6 percent in 2017.

Central

Residential: Housing permits grew 1.5 percent in the 12 months through November. A November surge in permit growth was seen in Colorado (up 32.0 percent), Missouri (53.0 percent), Wisconsin (57.3 percent), Illinois (117.6 percent), and Minnesota (120.7 percent). Low pricing in the oil and gas and agricultural markets are hurting states that depend on those industries, like the Dakotas, Nebraska and Kansas. Home prices rose across the region exceeding the five year average for most of the states. The exception is North Dakota which is now below its five year average of 6.4 percent. Rising home prices spur remodeling and new construction which should help HARDI member sales in the region. Residential construction permits are expected to grow 9.5 percent in 2016, followed by 3.5 percent in 2017.

Commercial: The Central region is experiencing a weakening commercial construction trend. From total dollars spent, 2016 will be flat with 2015 with spending around $11.7 billion. Commercial spending dropped significantly in November falling off robust rates of 2015. ITR says to expect a lot of pressure on margins with slowing macroeconomic environment and decline in commercial construction in the region. Late in the year there should be some improvement which will accelerate in 2017. The ITR forecast for commercial construction growth is 0.7 percent for 2016 with acceleration to 19.3 percent in 2017.

Southwestern

Residential: Housing activity is expected to accelerate in 2016 before moderating in 2017. Housing permits contracted in most of the region in the three months ending in November 2015. Texas is gaining momentum driven by economic and employment growth. Home prices rose across the region. ITR’s housing forecast is 8.5 percent growth for 2016, slowing to 5.2 percent in 2017.

Commercial: Total number of projects dropped 33.5 percent near the end of 2015, with total project area down 10.1 percent. Oil projects were tabled last year and with continuing low prices the region is experiencing a mini-recession. The ITR forecasts commercial construction improving by mid-year with growth moving up from -10.8 percent in 2015 to 16.8 percent in 2016 and 16.1 percent in 2017.

Western

Residential: Housing permits in the Western region rose 15 percent in the 12 months ending November but ITR expects the pace of rise to slow through third quarter 2016. Most of the region is in an accelerating growth phase with 41 percent of permits issued in California during the 12 month period. Permit strength should benefit HVAC equipment sales in the coming months as construction commences. Home prices increased above the five year average across the Western region which ITR says should provide an incentive to housing developers and contribute to upgrades to existing homes. ITR expects annual permits to slow into third quarter before accelerating again in fourth quarter resulting in 8.2 percent growth for 2016. Growth should continue at a similar pace in 2017 at 9.4 percent.

Commercial: Total projects in commercial construction continue to be 5.2 percent higher than one year ago but the rate of increase is slowing. Total projects and square footage is declining. With fewer and smaller projects coming on line, ITR says HARDI members can expect smaller orders from contractors. The forecast for commercial construction is 13.9 percent for 2016, dropping to -2.2 percent in 2017.