HARDI/ITR Quarterly Forecast April 2018, Part 1

Written by Sandy Williams

ITR Economics continues to expect economic growth in 2018 followed by a mild recession in 2019. Concern over looming 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 the Institute for Trend Research (ITR), 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. Today’s issue will cover the general economic overview, as well as construction forecasts for the Northeast, Mid-Atlantic and Southeastern Region based on data as of the end of March 2017.

Economic Overview

ITR Economics updated its U.S. Total Industrial Production forecast for 2019 after revisions by the Federal Reserve board to industrial production data. The projected growth rate is now 2.9 percent from the prior year-over-year estimate of 1.1 percent.

“Even with a slightly lifted outlook for 2018, the U.S. economy is not in an impervious position,” writes ITR Economics. “In fact, there is a new economic threat rising out of Washington that is giving cause for concern: tariffs. For us, the tariff issue comes down to the benefits of free trade and the dangers of unintended consequences. While the select, protected industries may benefit, the inflationary potential of protectionism and the high probability of unintended consequences from these tariffs could place the U.S. economy’s business cycle rising trend at risk.”

Consumers rely on lower priced domestic products to keep prices down. Rising inflation at 2.4 percent and growing negatively affects the purchasing power of consumers, says ITR. Higher costs for steel and aluminum will impact material costs for HVAC producers that will be passed on to HARDI distributors and their customers. Retaliatory effects to the Section 232 tariffs may cause disruption to the international trade system and global trade volume. 

National mortgage rates are at their highest level in more than four years and U.S. home sales have slowed due to higher financing costs and limited inventory.

Commercial lending rates jumped 50 points since the last HARDI/ITR regional report to 2.01 percent at the end of March. Four rate hikes are scheduled so far by the U.S. Federal Reserve Board for 2018. Risks from steel and aluminum tariffs and retaliatory tariffs on exports of products to China could spur inflationary pressure that will support increased interest rate hikes.

The Consumer Price Index rose 2.4 percent year-over-year in March, in line with ITR expectations. Consumer prices are expected to rise through 2019, but at a slower pace starting in the second half of 2018. Again, tariffs will be an upside risk to inflation.

The remodeling market may benefit from the slowing in the sales of new and existing homes and rising mortgage rates. Consumers may choose to remain in current housing and put their money into upgrades such as new heating and AC systems.

Consumer spending is expected to continue to accelerate through the second quarter before slowing in the second half and through 2019. Retail sales should pick up in 2020 after the mild recession.


Housing permits in the Northeast rose 10.1 percent in the 12 months through February and are accelerating. Multi-family units are offsetting a slow growth trend of single-family permits. Home prices have accelerated across the region with some softening in New York, Massachusetts and Maine. Inventories are at low levels pushing prices higher. Residential construction is expected to rise through 2018 at a slow pace and then decline in the second half of 2019 before resuming in 2020. The housing construction forecast calls for a 6.5 percent increase in 2018, a 2.6 percent decline in 2019, and a surge of 14.6 percent in 2020.

Nonresidential construction in the Northeast is below year-ago levels in most of the Northeastern states. Maine is experiencing decelerating growth while Connecticut construction may have peaked, signaling slower growth in the coming months. ITR revised its forecast for construction spending downward to -7.5 percent growth in 2018, 21.16 percent in 2019 and 2.6 percent in 2020.


Multi-family housing permits are outpacing those for single-family houses. Although both show growth, the pace of growth for new residential construction is slowing. Pricing in the region underperformed the national average except in Washington, D.C., which is also seeing a surge in inventory. The ITR Economics forecast shows growth at -0.8 percent in 2018, -1.0 percent in 2019, followed by an upswing to 11.6 percent in 2020.

Nonresidential construction is growing in half of the region and declining in the other half.  Construction in D.C., NYC and New Jersey is down 5.4 percent, 52.1 percent, and 42.6 percent year-over-year, respectively. In the 12 months through February, spending totaled $2.4 billion, down 29 percent from a year ago. Commercial construction contributed most to the decline falling 64.8 percent year-over year. With GDP accelerating, the medical sector growing, and declines in the government and retail sectors easing, ITR expects recovery for nonresidential construction in the near term and persisting into 2019. The forecast for construction spending is 9.08 percent in 2018, 3.8 percent in 2019 and -17.4 percent in 2020.


Unlike the Northeast and Mid-Atlantic, single-family permits are driving growth in the Southeast at roughly 75 percent of all permits issued in the 12 months through February. Mississippi and Georgia were the only two states in decline as of February, at rates of -10.7 percent and -1.4 percent, respectively. Home prices increased across the region except for Mississippi, where increased inventory put downside pressure on prices at the end of 2017. Permits have begun falling in the state, tightening supply and stabilizing prices. The housing forecast for residential construction is -1.2 percent in 2018, 1.6 percent in 2019 and 9.0 percent in 2020.

Nonresidential construction spending fell 6.1 percent annually in February, transitioning into ITR’s recession designation since the last HARDI/ITR regional report. Virginia is the only bright spot in the region, accelerating 29.7 percent since the last report. The construction forecast was revised upward after a data revision issued by CMD group and the accelerating GDP growth in the Southeast. The new forecast calls for a 0.6 percent increase for nonresidential construction in 2018, 10.1 percent in 2019, and a decline of 1.5 percent in 2020.

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