NWSA annual meeting on tap for Oct. 2-6

STAFDA president Dutton Miller: higher rates won't slow commercial construction.

By Industrial Distribution Staff -- Industrial Distribution, 9/1/1999

NEWTON, MASS.--Although most regions remain red hot when it comes to home building, an uptick in mortgage rates and up and down housing starts may forecast some cooling this fall in the residential construction sector.

After remaining below seven percent earlier this year, the national average for 30-year fixed-rate mortgages climbed to eight percent last month, the highest rate in two years. That triggered fewer applications to buy homes and to refinance mortgages, banking officials said.

Housing starts fell 5.6 percent in June, although the number of building permits issued rose by two percent. However, starts rebounded in July, increasing 5.7 percent, indicating that the sector is showing resilience even while rates rise.

Many distributors continue to reap revenue increases from cranking construction activity. During the second quarter, members of the Specialty Tools & Fasteners Distributors Assn. reported an 11.4 percent increase in sales compared to the year before. All regions except for the Rocky Mountain states reported gains, with only 15 percent of the participating firms reporting flat or declining revenue. STAFDA distributors continue to chase the record of 30 consecutive quarters of growth obtained during the boom times of the 1980s. They are within one quarter of tying that record, although the uptick in rates and June's housing slowdown could stand in the way of breaking the string.

STAFDA president Dutton Miller, a partner of Whitehead Hardware Co. in Valdosta, Ga., said the change in mortgage rates will have little if any short-term impact on companies like his that do more business with commercial and industrial projects.

"The commercial market seems to be going along just fine," Miller said, adding that through early August, sales were slightly better than during 1998. "We haven't heard of anything to indicate any problems."

The prospect of higher interest rates merits concern, of course, but even the effects of rate hikes would be felt later than in the residential market since most commercial projects "have been on the books for years," he said.

California distributors led the pack with a 28.4 percent increase, followed by the Northwest at 15 percent, mid Atlantic distributors at 14 percent and Canadian members at 13 percent.

STAFDA executive director Morrie Halvorsen said that through early August, distributors' sales had not been threatened by interest rate changes.

"I think there's enough work committed so far that we're not feeling any effect yet," he said. "Everybody seems to be busy. The only complaints continue to be a shortage of workers and shortage of materials" such as gypsum board and, in some regions, concrete.

In a separate report, the government said overall construction spending rose slightly in June, by half a percentage point, because of a pickup in commercial building and public construction projects. Residential construction spending dropped by two-tenths of a percent. For the first six months of 1999, total construction spending was up four percent compared to 1998.

Second quarter sales by region compared to same period in 1998

Region Second quarter sales

Northeast + 8.9 %

Mid Atlantic + 14.5 %

Southeast + 8.1 %

South Central + 6.0 %

Midwest + 12.6 %

North Central + 4.8 %

Rocky Mountain - .5 %

Northwest + 14.9 %

Pacific + 28.4 %

Canada + 13.4 %

Overall average + 11.4 %

Source: Specialty Tools & Fasteners Distributors Assn.