The Past is History
Gypsum board is produced primarily as two product types—1/2-inch-thick regular core and 5/8-inch-thick type ‘X’ core—and is used to finish the interior of 98 percent of the homes constructed in the United States. While proprietary board and panel products exist, gypsum board is generally considered to be a commodity building material.
Proprietary board and panel products exist, gypsum board is generally considered to be a commodity building material.
Due, in part, to its commodity nature, gypsum board shipments are characterized by volume peaks and valleys. So when shipments began to slow during the second calendar quarter of 2006 (2Q 2006) it appeared that that the industry was heading into a typical “cooling off period” and that a few slow years would be followed by a robust recovery. Such was the historic path.
Unfortunately, the “cooling off period” evolved into an ice age. The decline that began in 2006 lasted 17 consecutive quarters and did not bottom out until 4Q 2010.
It was a downward spiral of historic dimensions for the gypsum industry. Between 2Q 2006 and 4Q 2007, quarterly domestic board shipments fell by almost 30 percent. By 2010, they had declined by 50 percent overall. Any early supposition that it was going to be a modest downturn was wiped out by 2008. By that time, it was clear that the slump was going to be robust and brutal.
THE LONG, HARD PERIOD
From its beginning to (its hopeful) end, the slump was longer in duration than any downturn since 1930. There was a gradual three to four-year drop in shipments in the early 1940s that coincided with World War II and a three-year drop in the early 1980s (remember that recession?) but nothing that matched the length of the recent downturn. Even during the Great Depression of the 1930s, the downward trend lasted only three years. Shipments actually began to increase in the middle 1930s and were relatively healthy at the beginning of World War II.
The slump was also robust. During the downturns in the 1940s and 1980s, overall shipments declined by about 20 percent. In contrast, they decreased by approximately 50 percent from 2006 to 2010.
To be analytically fair, shipments also decreased by approximately 50 percent between 1930 and 1934; however, any comparison between the two eras must take into account the contrast in industry size between 1930 and 2006. The Depression-era gypsum industry was microscopic when compared to today’s behemoth. In 1930, before it began to slip, the entire industry shipped approximately 600 million square feet of board, a quantity roughly equivalent to the annual output of a single medium-size plant in today’s marketplace. The modern industry is significantly larger. Even at the bottom of the contemporary trough, annual board shipments were more than 17 billion square feet in 2010.
But enough doom and gloom. Contemporary analysis indicates that the Great Recession bottomed out in mid-2009. Hopefully, brighter days are ahead and we’ve hit the bottom of the theoretical “V shape.”
SIGNS OF, ALBEIT SLOW, GROWTH
Indications are that board shipments are picking up and that the tendency of the gypsum industry to serve as an early indicator of a decline and a late indicator of a recovery is holding form. Between 2006 and 2007, housing starts dropped by almost 30 percent. While the economy was not technically in a recession, it was suffering and board shipments were impacted accordingly. With the recession technically ended, one could anticipate an increase in board shipments, albeit a seemingly delayed increase, as gypsum board is one of the last materials to be installed in a project under construction. That appears to be the instance during the past year.
After tumbling year-to-year since 2005, annual board shipments increased in 2011, and 2012 shipments are annualizing at a rate above 2011 totals. In addition, shipments for each quarter beginning in 3Q 2011 are up when compared to the same quarter in the previous year, and the third and fourth quarters of 2011 were the first time that shipments increased in consecutive quarters since 2006.
While they remain significantly below historic averages, housing starts also appear to be picking up. After bottoming out in 2009, starts bumped up by about 10 percent by 2011 and, according to the July 2012 Census Bureau report, are running about 14 percent above a year ago. While an upward trend in starts appears to be occurring, it is sobering to note that more houses were started in 2005 than in the three year period beginning in 2009. The housing industry has a ways to go before it can be labeled fully healthy.
Following World War II, board shipments tripled between 1945 and 1951. Some of the increase was undoubtedly fed by suburban growth patterns, but much of it was a gradual move from wet plaster systems to drywall—a movement that likely was fueled, in part, by product familiarity stemming from the extensive use of wallboard in military barracks during World War II.
In the 1980s, shipments jumped by 40 percent between 1982 and 1986 and then effectively leveled off until about 1992 when they began a steady year-over-year increase to the 2005-2006 peak. The quick jump in the 1980s appears to be closely linked to a rapid increase in housing starts from 1982 to 1986 that was fueled by a sudden decline in interest rates. After 1986, housing starts gradually declined into the early 1990s, when they began the steady rise that saw over 5.5 million U.S. housing starts between 2003 and 2005.
The U.S. gypsum industry consisted of 14 companies in 1984, a number of which were small, single plant operations. Today’s industry has fewer players—eight companies manufacture board in the U.S. at present—and no small operators. In addition, 30 years ago, the domestic companies were largely, if not exclusively, U.S. owned and operated and many shipped only within specific regional markets. Today, all of the U.S. manufacturers operate in more than one region of the United States and some are subsidiaries of or tied to international corporations.
In 1984, buying board was about as exciting as shopping for pants in Moscow; you had four sizes and three colors to pick from, and none were real electrifying. While, as noted above, 88 to 90 percent of all board shipped is one of two types, today’s product line is radically different than it was three decades ago. With modern manufacturing techniques, board can be produced that is mold and moisture resistant, board with the proper facing can be installed and left to the elements for months, and unfaced board is available.
Hopefully, the upward trend will continue for both the overall economy and the gypsum board industry. W&C