After a solid gain of 12% to 15% in 2006, market demand for vinyl fencing and decking products is down 9% for the year to date. The situation is not likely to improve during the next few months, but it should not get much worse. Our Fencing & Decking Index forecasts a decline of 8% to 10% for all of 2007, but demand will rebound by about the same amount in 2008.
For anyone supplying building materials to U.S. residential construction, the best that can be said about 2007 is that it is almost over. While manufacturers of vinyl fencing and decking can empathize with that sentiment, demand for these products has not been hit as hard as some other segments. For instance, vinyl siding and windows are down close to 20% so far this year, following declines of 6% to 8% in 2006.
One reason for this difference in is that vinyl fencing and decking markets are not as mature as those for PVC siding and windows. Vinyl fencing and decking is still a relatively small segment, which means that it can enjoy high rates of growth during good times and may not suffer as badly as more mature products in down periods.
Another reason why demand for fencing and decking is less vulnerable than other vinyl products during slowdowns in residential construction is that, for now at least, their primary use is for additions or improvements to existing houses rather than for new houses. This is an important distinction when one considers that new housing starts are down a whopping 25% so far in 2007 (in units) after a 13% plunge in 2006. And spending for residential construction projects is down a hefty 18% for the year to date after registering no growth in 2006.
When one looks at the much smaller, but less volatile category of spending on residential improvements and repairs, the decline is a moderate 6% to 8% for the year to date. This comes after a gain of 6% in 2006. So for now, the data on improvements and repairs is the better indicator of market demand for fencing and decking products. Another indicator of demand for home-improvement products is the monthly retail sales figures from building material and supply stores. Through the first half of 2007, sales are down 2%, which is the largest decline in the retail sector this year.
So while it is clear that everybody in residential construction is feeling the pain this year, the good news is that all of these indicators appear to have hit their cyclical bottoms in the third quarter of 2007. Whether one looks at the annualized figures or the seasonally adjusted figures, the downward trajectory is decelerating rapidly or has already flattened out. This means that construction activity will not improve rapidly during the next few months, but it will stop posting negative growth rates in the monthly data. The trend will stabilize at or near current levels for the rest of this year, and will move into an early recovery phase in 2008.
If the recent pattern holds, the growth rate for sales of vinyl fencing and decking products will exceed those for many other categories of building materials. The fourth quarter is traditionally a slow period for this sector, but fencing and decking manufacturers should utilize this seasonal slowdown to prepare for improving conditions in the spring and summer of next year. Even after the consolidation that occurred in the industry this year, there will be ample production capacity in the early stages of the recovery. So the environment will still be quite competitive in 2008, but manufacturers who prepare for the pending recovery in the market will be in a better position than those who choose to wait and see.
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 BillWood@PlasticsEconomics.com. His monthly Injection Molding and Extrusion Business Indexes are available at www.ptonline.com.