Survey suggests weaker Q3 repair & remodeling activity
By Daryl Delano -- Industrial Distribution, 5/1/1999
Consumer spending for residential repair and remodeling work declined sharply between the second and third quarters of last year. But what about spending for 1998 as a whole? We don't know yet, since this Commerce Department quarterly data series is released with such a long lag time, typically four to five months after the end of the quarter being surveyed. Therefore, full-year 1998 data won't be available until this month.Although spending for the July-September period came in at a disappointingly low level, total repair and remodeling spending through the first nine months of the year was running comfortably ahead of the 1997 pace. Total expenditures through three quarters of last year were 1.8% above the January-September 1997 level. Spending for addition and alteration projects had increased by 1.9% over the year, and spending for maintenance and repair work was 1.5% greater during the first nine months of 1998 than over the same period of 1997. The strongest gain, however, was recorded by the major replacements category (just over 20% of all residential repair/remodeling spending during 1997) where expenditures through three quarters of last year were 10.4% greater than over the first nine months of 1997.
The first two quarters of 1998 saw residential repair and remodeling expenditures grow strongly. During the fourth quarter of 1997, total spending was estimated at a seasonally adjusted annualized rate of $114.1 billion. First-quarter 1998 spending was 6.1% better than this, or an annualized total of $121.1 billion. An even stronger gain of 7.6% was estimated for the spending gain between last year's second and third quarters, as spending reached a record-high level of $130.3 billion, on a seasonally adjusted annualized basis.
Coming off this midyear high with an annual pace of more than $130 billion in repair and improvement spending, the third-quarter plunge to exactly the same level as during the final quarter of 1997 -- $114.1 billion -- came as quite a surprise. This over-the-quarter drop of more than 12% wasn't rooted in any significant change in economic fundamentals. Yes, consumer confidence faded a bit during the third quarter of last year -- but only by 3.6% from the second-quarter average, and remaining at a level still very high by historical standards. Income growth and job growth remained strong during the quarter, and unemployment averaged less than 4.5%. And although overall consumer spending faded from a 6.1% annualized rate of growth during the second quarter of the year to a more moderate 4.1% rate, it remained well above the annual gains recorded in both 1996 and 1997.
Over the quarter (second-to-third quarters of 1998, that is) declines in the market ranged from a low of just 0.5% for maintenance and repairs, to a moderate 3.2% for major replacements, and up to a dramatic 24.6% loss for the additions and alterations category.
Caution should be exercised in interpreting quarterly changes in these data covering residential improvements and repairs. The statistics in the quarterly Commerce Department report are estimated from sample surveys, and thus are subject to sampling variability as well as non-sampling error. And the statistical confidence intervals are very wide indeed.
We believe that spending likely grew between the third and fourth quarters of 1998. Consumer confidence bounced back from the third quarter blahs, and consumer spending increased at a faster rate. And spending on durable goods -- which describes most of the material and equipment content of an addition/alteration job -- increased at an annualized rate of 20.1% during the last three months of 1998.
We think that the final numbers will show that 1998 was a pretty good year for the repair/remodeling sector of the residential market. And moderate growth should continue through 1999-2000.
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