Construction looks flat in '99
By Staff -- Industrial Distribution, 3/1/1999
How good have things been in the construction sector? Members of the Specialty Tools & Fasteners Distributors Assn. recently reported their seventh consecutive year of growth. In that time, STAFDA houses have posted 28 consecutive years of quarterly growth. They are just six months away from tying the record of 30 consecutive quarters of growth, set from 1983-90.In 1998, STAFDA members reported sales gains of 9.5 percent. Sales were up an incredible 26.9 percent for the year in the Pacific region. For the first quarter of 1999, they project sales to increase 7.5 percent over the same period of 1998.
The other good news was that 1998 finished strong, with sales up 12 percent in the fourth quarter. Also, days receivables dropped to 38 days, four days below average.
However, while nobody is predicting a downturn in 1999, construction activity is expected to be flat, which might pose some problems for STAFDA's record-chasing distributors. According to the FMI 1999 Construction Outlook, overall construction activity was up five percent last year, but will show no growth in 1999. Specifically, residential construction, which grew nine percent in 1998, will drop one percent in 1999. But coming off 1998's strong numbers, that should still keep homebuilders -- and their distributors -- very busy.
Nonresidential construction, which eked out a two percent gain in 1998, is forecast to drop by one percent in 1999, while nonbuilding structures, flat last year, will expand by three percent.
Industrial building construction continues to sag. In 1998, it dropped six percent, although that represents an improvement over the 12 percent drop in 1997. The outlook for 1999 isn't much brighter, as industrial building construction is expected to drop another eight percent.
According to the FMI report, the reason for the fall is increased productivity on behalf of manufacturers, who have continued to make heavy capital investments in equipment, not buildings. The result is increased output at lower costs, with a minimal increase in square footage. Although this concept can only go so far before new capital expenditures become unprofitable, FMI says the "concept of increasing productivity in order to increase production will continue to receive major focus."
As the economy slows and markets contract both in the United States and overseas, investments will decline, therefore leaving even less capital for new construction in 1999.
Starts versus value
Although single family housing starts are expected to decline by three percent in 1999, expect only a one percent drop in the actual value of new single family housing. That's because the FMI Construction Outlook predicts that the low end of the housing market will drop off more than the high end.
Therefore, despite the overall three percent drop, 1999 should qualify as the second best year ever for single family housing, even after correcting for inflation. Low interest rates drove single-family housing up by 11 percent in 1998.
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