For distributors selling to the general construction industries, the second half of 2006 proved worrisome. Start-up housing construction was down dramatically in most areas of the country.

But for those who sell to the commercial end of the construction industry, things were decidedly better, and should continue to be in 2007.

Jim Haughey, director of Research & Analytics for Reed Construction Data, suggests the news isn't all bad as long as distributors diversify what products they sell and to what markets they sell them.

As far as housing sales are concerned, “we've used up the surplus inventory. And that's going to persist for most of 2007, possibly for the whole year,” Haughey says. “Housing starts will be about 1.7 million, when they had been up as high as 2.1 million to 2.2 million starts.”

Experienced distributors should not be surprised at this, he adds.

“It's just a sign we're sucking up the surplus [housing] inventory, which, as every distributor knows, is always bigger than you thought it was,” Haughey says.

Distributors who have more diverse product lines that are less focused on the housing start-up market should do well. Equipment used in site work and preparation for the construction of large buildings, such as offices and hotels, will be in demand, Haughey predicts. For example, sales and rentals of large, heavy-duty equipment have improved.

“Construction spending for hotels this year is up 50 percent,” he says. “The hotel industry has been the market with the biggest boom. So the focus [will be] on the heavier equipment—land clearing, foundation digging materials.”

Haughey differs slightly from those who see the commercial building surge as a natural result of homes being built, followed by the inevitable construction of schools, police stations, and other municipal buildings.

“In a municipality that has a tight budget, you're going to have to wait sometimes for those schools,” he says. “You might have to wait a couple of years, or until the local government gets the cash.”

Haughey does see the surge in commercial and institutional construction tapering off, but not until late '07 or early 2008.

“In '07, I think we'll see that the big surge in new starts of non-residential buildings is going to start tapering off,” he says. “But it will take about a year-and-a-half to build what's already been started.”

Among other things, this means distributors selling products used on near-completed projects at end of the construction cycle—items such as paints or fasteners, for example—will see things get better through '07 and into 2008.

Looking beyond that, Haughey says he thinks the overall business economy is improving, but he isn't celebrating quite yet.

“The economy does seem to be getting a bit better. But if that doesn't turn out to be the case, that could sour moods, which could sour developers as well as homebuilders,” he says.

Construction projects that are in the planning stage could feel the impact. If the economic mood “sours,” as Haughey puts it, those projects could be stalled—leaving distributors stymied as to how much material and tools to order for down the road.