After expanding by 5% to 6% in 2006, U.S. production of wire and cable products experienced a 1% to 2% decline in 2007.

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After expanding by 5% to 6% in 2006, U.S. production of wire and cable products experienced a 1% to 2% decline in 2007. There were pockets of strength in a few lower-volume, more specialized wire/cable end markets such as electronics, medical, and aerospace, but overall industrial demand was flat or lower. And the sluggish industrial sector couldn’t make up for the plummeting demand from residential construction. Yet despite the lackluster performance this year, the growth curves for wire and cable and many of their major end markets hit cyclical lows during the second half of 2007. This means that makers of wire and cable products should expect moderately improving conditions as 2008 progresses and more robust overall growth in 2009.


Housing starts exert drag

The growth trend in new residential construction, particularly housing starts, correlates strongly with the growth in output of wire and cable made with PVC. The wire data lags the housing starts curve by a quarter or two. So understanding the direction of momentum in the construction data is an important indicator of future demand for many types of wire and cable. The number of new housing starts in the U.S. plunged by 13% in 2006 and then spiraled down another 20% for all of 2007. The data on output of wire for use in the construction sector followed this pattern, but the volatility was not quite as severe. Wire production was flat in 2006 and then dropped an estimated 12% in 2007.

There are two reasons why the drop in the data for this type of wire was more subdued this year. The first is that while construction of new houses was in a steep decline, overall activity in the non-residential sector enjoyed a solid gain. The other reason is that residential remodeling activity on existing houses fell a more moderate 5% to 7% in 2007. So the demand from the non-residential and remodeling sectors mitigated some of the drop in overall demand for PVC wire and cable. It will take most, if not all, of 2008 for the residential construction sector to recover from its current recession, but the rate of decline will soon stabilize. This means that construction market demand for wire will not be particularly good for a while, but it should not get any worse.


A brighter spot

Another major type of wire and cable is for communication and energy, and here the news is a little better. After a solid gain of 9% in 2006, output of these wire products held steady in 2007. Activity in this segment is still nowhere near the levels posted at the end of the last decade, but there has been a gradual uptrend during the past three years. The growth trend for this type of wire shows a strong correlation with the data for total U.S. industrial production. This means that the pedestrian performance of 2007 will be followed by a slow, gradual improvement in 2008 and accelerating growth in 2009.

One other set of factors that will continue to heavily affect producers of wire and cable is the cost of materials. Anyone trained in classic economic theory would hope that a period of slack demand like we have now would be accompanied by an overall decline in the price of raw materials. But unfortunately, this is not presently the case. Resin prices continue to follow the price of crude oil upward, and the cost of metals is also at or near cyclical highs. In the long-run this will actually enhance the demand for products such as wire, because the North American market will have to manufacture its way to lower energy and materials costs. Alternative and/or “green” sources of energy, as well as the equipment and infrastructure needed to utilize these new energy types, will require a large amount of capital investment. This represents burgeoning new markets for wire and cable in the not-too-distant future. However in the short term, high materials costs are an impediment to wire and cable producers, and these pressures are expected to persist for at least the next two years.


Bill Wood, an independent economist specializing in the plastics industry, heads up Mountaintop Economics & Research, Inc. in Greenfield, Mass. He can be contacted by e-mail at His monthly Injection Molding and Extrusion Business Indexes are available at