Up Front: The Boom and the Bust - Column

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While we are all doing what we can to survive this economy, we should remember that the first decade of this century was booming in construction like most of us had never seen. Comparing to this very high level watermark is unrealistic. So, a lull was to be expected (OK, maybe this is worse than a lull).

I am not surprised by the current market. When housing prices skyrocketed beyond what average people could afford to pay, you have to expect that prices would come back down. The higher and faster they shoot up, the harder they fall. But with all the concern and speculation on the economy, Walls & Ceilings has kept close tabs on what is happening in the market.

Recently, I read an interesting forecast on the growth within construction activity in North America, as projected by IHS Global Insight, a North America think tank that publishes several reports annually on all facets of economic and construction activity, as well as more. In this piece there are some interesting projections. The piece notes that a big up-tick in new development may not be as soon as most economists had originally thought. The good news is that things seem to be stabilizing economically, which eventually will lead into another construction boom. But will it come soon enough? We believe yes. W&C has spoken to many of its readers and it seems most companies have already made the hard sacrifices and are keeping afloat. If they’ve lasted this long, they can sweat out the remainder of the duration until things are healthy again.

In particular for drywall and plaster, the long term prognosticators are projecting growth in North America, as its says in the Freedonia Group’s feature on page 30. Sales of drywall in North America are projected to increase 10.6 percent per annum to 3.4 billion square meters in 2014. Plaster sales in North America are projected to advance 8.3 percent per annum through 2014. That’s good news on both building materials, and the suppliers and contractors who install these assemblies.

Considering that skyrocketing housing prices meant that a crash was inevitable, wouldn’t it stand to reason that a longer-than-expected recession means a boom is coming? Young people are graduating college, getting married and having children, and will buy homes. We believe a backlog is developing and it is good news for us in construction.

Some metro markets are already reporting a slight up-tick in housing sales. While it is far from a boom, it indicates that the bottom has been hit, which should calm fears, and recovery is now around the corner. Not surprisingly, commercial is sluggish and likely to remain slow for a while. This is traditional in construction that housing leads the way, first to fall, and then first to come back. Residential contractors will be the first to feel the recovery, and then the commercial contractors will feel the recovery about 12 to 16 months later.

While housing starts is the tried and true measurement for residential construction, a good indicator for commercial construction is the Architectural Billing Index. The ABI is a system that indicates how busy architects are on non-residential projects. The news has been bumpy for the last few months; one month up and the next down. The magic number for the ABI is 50: A rating of 50 means status quo, more than 50 indicates more billings than previous months and less than 50 relates to a decrease in billing. The ABI rates by regions of the country and by types of commercial and/or institutional projects. While the group that puts the ABI together are disappointed about current indexes, they believe recovery is taking place, albeit bumpy and slower than hoped. Considering that the nation’s ABI rating was 37.7 only a year ago, hovering around the 50 mark is encouraging.

We will continue to keep an eye on the future for you and your business. We strive to find relevant information for you to assist you in making the best decisions possible to survive these slower times and ultimately be prepared for the boom that is coming, and it is coming. Just “when” is the question?