Wood on Plastics: Construction Starting at the Ground Floor

Don’t expect much to change in the construction market this year, as we’re projecting zero growth over 2009. You might see a small bump in residential construction, but that will be offset by another year of double-digit declines in non-residential construction spending. In the public sector, very tight budgets will inhibit state spending on projects, but this will partly be offset by the release of some remaining federal funds from the stimulus package. Most of these problems will run their course during the year, and growth is expected to accelerate in 2011 and 2012.

Activity in the residential sector hit bottom in the first half of 2009, but significant impediments to a full recovery persist. For starters, the number of home foreclosures is not expected to peak until 2010. This comes on top of a record-setting 2009. There are a huge number of adjustable-rate mortgages scheduled to reset this year, and many homeowners will have no choice but to walk away from their obligations. This is compounded by the fact that banks are still unable or unwilling to lower their loan standards. The Federal government may yet devise a program for some relief, but the efforts so far have had little effect.

The hardest hit areas will continue to be California, Arizona, Nevada, and Florida. Most of the other areas of the country will actually fare much better this year, but huge problems in these four states will keep prices and demand for new homes subdued. Sales of existing homes will accelerate this year as the huge inventory of foreclosed properties is worked off at bargain prices. Once this overhang is cleared up, demand for new home construction will increase more rapidly.

When the residential construction recovery finally does crank up to full steam, the peak will not return to the levels experienced in 2005 and 2006, but will top out closer to the numbers posted in 2003.

 

What this means to you

It won’t be business as usual for processors serving this critical market. Here are a few things to track:

• Sustainability: In new home construction, products that promote energy efficiency will experience steadily increasing demand for the foreseeable future.
• Energy: Production and consumption of energy will be the biggest things in both residential and non-residential building design and construction in the coming years. Products such as photovoltaic panels, solar hot-water collectors, an array of windmill sizes and shapes, and geothermal pumps figure to make inroads.
• Monitors: Household energy monitors, sensors, and switches will also become prevalent. Smart-grid technology, net metering, and zero emissions will become common buzzwords.

 

About the Author

Bill Wood, an economist specializing in the plastics industry, heads up Mountaintop Economics & Research, Inc. in Greenfield, Mass. Contact BillWood@PlasticsEconomics.com. See his monthly Injection Molding and Extrusion Business Indexes at ptonline.com.