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 construction made strong gains in the past 12 months. Permit authorizations in the 12 months through February reached 60,500 units, up 14.7 percent year over year. Except for slowing in West Virginia, all the states in the Great Lakes region showed positive momentum in the last three months. West Virginia’s economy has been hurt by the move away from coal fired power which will weaken the housing market in the state. Home prices are increasing across the region, and combined with rising wages and employment levels, will have a positive impact on new construction and remodeling. ITR expects higher demand for high efficiency heating and air conditioning products from HARDI distributors. ITR expects annual permits to rise through the end of 2017 with a brief dip at the end of 2016. Permit growth of 5.4 percent is forecast for 2016 followed by 12.1 percent in 2017.
Commercial construction is also picking up in the region as we move into mid-2016. Overall commercial construction spending is expected to increase in the second half for a 16.3 percent increase for the whole of 2016. Slower growth is anticipated for 2017 with spending up 3.6 percent for the year.
Housing construction in the Central region had an unexpectedly strong February and permit authorizations are forecast to accelerate through 2016 and then slow in 2017. Larger states in the region are growing faster, while smaller states are slowing or declining. North Dakota has had the most severe losses likely driven by the oil slowdown, said ITR. Colorado and Minnesota are showing the strongest opportunities for HARDI activity, but ITR suggests caution when expanding into North or South Dakota. Home prices rose consistently across the Central region which should encourage home sales and home improvement. Permits are expected to be 9.5 percent higher in 2016 from the previous year and 3.5 percent higher in 2017.
Commercial construction spending in the 12 months through February 2016 was 9.2 percent below the year ago level. ITR expects a weaker year overall than 2015 with a low point coming during second quarter 2016. Parking garages and automotive facilities are showing the most growth in the region. Spending activity has been inconsistent among the states with no clear trend. The two states with the largest share of total value in the region, Illinois and Colorado were widely apart on spending, down 13.1 percent and up 27.8 percent, respectively. With so much variation in growth rates from state to state, HARDI members should be cautious when expanding beyond their current distribution areas, said ITR. The commercial construction growth forecast is -4.4 percent in 2016 with 2017 much better at 24.4 percent.
ITR expects housing construction to reach a cyclical low in second quarter 20156 followed by acceleration through 2017. Permit authorizations have slowed in parts of Texas but are up in Arkansas and New Mexico. Home prices rose in all the Southwest states in the past year, outpacing the national average of 4.7 percent, but are expected to slow in 2016. Softer prices in tandem with rising permit authorizations in Arkansas and New Mexico suggest consumers are leaning toward purchase of new homes rather than existing ones. ITR revised its forecast downward due to housing construction weakness resulting from the downturn in the energy industries. Housing permits are expected to accelerate into the second half of 2017 as oil prices recover. The forecast for housing construction in the Southwest is 8.5 percent for 2016, and 5.2 percent in 2017.
Commercial construction showed weakness in the Southwest despite tentative signs of recovery in late 2015. As of February, four out of five states in the region were experiencing declines in construction activity. Oklahoma commercial construction was still growing but is showing signs of entering recession in the near term. ITR expects growth to accelerate in the second half of 2016 and then continue at a slower pace into Q3 2017 before accelerating again. Commercial construction growth is expected to reach 16.8 percent in 2016 and 16.1 percent in 2017.
Permit growth in the West is expected to slow into third quarter 2016 before accelerating through the first half of 2017. Growth is expected to slow in the second half of 2017. Home prices have increased throughout the region increasing home-owner equity and attracting new development. ITR expects strong growth opportunities for HARDI members in 2016 and 2017. Permits are expected to be up 8.2 percent for 2016, followed by 9.4 percent in 2017.
Commercial construction declined 3.4 percent on a year over year basis in the West despite a strong February. California construction was down 24 percent year over year as of February and was the biggest contributor to the drop for the region. The current low in the West should give way to an acceleration that will carry through 2016 and 2017. Although value of projects has declined, total projects were up 8.1 percent in ITR’s quarterly data. Nevada has a huge Tesla-battery factory under construction that has skewed results for the region and is driving growth for the state. ITR forecasts commercial construction to be up 30.5 percent for 2015 followed by an increase of 3.3 percent in 2017.
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