With the U.S. economy generally improving for the past three years, demand for materials has been steadily growing. Even industries hit hard by the past recession, such as construction materials, are rising. Annual wholesale trade of lumber and other construction materials climbed to $105.9 billion in July, the highest total since April 2009. Positive indications from leading indicators such as the Architecture Billings Index suggest wholesale trade will rise though the near term as new construction projects keep contractors busy.
The increased demand for construction materials is not lost on the production side either: Plumbing fixture production is 4% above the same time last year (annual basis). Annual lime and gypsum production is up 1.1% from last year. Cement production gained 8.3% over the past 12 months, and plywood, veneer, and other miscellaneous wood products, which includes lumber, is 3.1% above last year. It is important to note that, much like the construction industry as a whole, the production of these construction raw materials remain below their precession peaks; however, the steady gains portray the ongoing recovery in the construction industry.
Despite the widespread good news, a few niche segments have not benefitted from the recovery in construction. For instance, glass and glass products production is in recession, with annual production 3.6% below last year and falling.
ITR Economics’ outlook for the construction industry is generally positive. We expect additional gains in both housing starts and nonresidential construction though the first half of 2013. The residential market will then begin to decline in the second half of the year, but keep in mind activity will remain about the current level through 2014. The nonresidential market will expand through 2014. The coming slowdown in residential construction will translate into weaker demand for materials in the second half of 2013 and 2014. For companies that focus in the residential market, consider missionary efforts into the nonresidential side, as that will provide better growth opportunities in 2014.