The U.S. economy is continuing robust growth following the COVID-19 led lockdown of the second quarter of 2020. The residential sector of the market is largely powering the economy currently.
Existing home sales, residential remodeling, new housing construction, consumer spending, and employment all are contributing to the sturdy growth of the residential sector, and this should continue through 2023. Commercial construction and remodeling are slowing U.S. economic growth currently and will not see growth until late next year. Even at that, retail and offices will be the slowest growing commercial sector during the commercial recovery period.
The current strength of the U.S. economy derives mainly from the following:
- Housing starts were up 13 percent through September and should finish the year at 1.6 million units, fueled by low interest rates, remote working, and a desire to live and raise a family in more open, safer places with better schools.
- Existing home sales will continue to grow at a strong level into 2023, averaging an annualized 5.5 million units, supported by low mortgage interest rates, which helps absorb the rising cost of homes.
- Interest rates, including mortgage rates, remain low, and this will offset some of the price rise in new and existing homes and improve housing affordability. Interest rates, however, should begin to rise in 2023, fueled by inflation, a falling dollar, and significant growth in the money supply.
- Consumer spending has been and will remain strong through 2022 due to the influx of funding from the stimulus recently passed and growing employment.
- Home remodeling has been enhanced by the increase in individuals working from home and the fact that the COVID-19 restrictions have made travel more difficult while inflation is making it more expensive.
- Business bankruptcies were down 43 percent in the first half of 2021 and now are closer to an average year’s filing.
- Real non-residential investment in structures, a measure of the inflation-adjusted investment in total new non-residential construction, continues to be hampered by uncertainty regarding future COVID-19 restrictions and back-to-work policies that need to be fully developed. It is forecast that real non-residential construction will fall 6.9 percent in 2021 before rising 17 percent in 2022. Also, the American Institute of Architects (AIA) Billings Index rose to 54.6 in the second quarter of 2021 from its low of 42 last year (an index over 50 indicates non-residential construction activity in the coming nine to 12 months will rise).
- Corporate pre-tax profits rose significantly in 2021 but are forecasted to fall slightly in 2022 before rising again in 2023.
Existing home sales, residential remodeling, new housing construction, consumer spending, and employment all are contributing to the sturdy growth of the residential sector, and this should continue through 2023. Commercial construction and remodeling are slowing U.S. economic growth currently and will not see growth until late next year. Even at that, retail and offices will be the slowest growing commercial sector during the commercial recovery period.
Factors threatening the U.S. economic situation include:
- Inflation from federal spending and debt could rise precipitously, causing the dollar to decline, prices to rise (especially imports), personal income to fall, interest rates to soar, and the economy to slip into recession.
- Federal government policies are imposing open borders and increasing government regulations and COVID-19 restrictions that can impede economic growth and curtail company hirings while boosting labor costs.
- Energy prices are rising as the federal government has canceled oil and gas drilling leases on federal land turning the U.S. from energy independence to an energy importer while raising fuel and raw material prices and boosting inflation.
- Continued undocumented immigrants and refugees entering the U.S. could threaten labor markets, expand welfare and social costs, raise government spending and debt while thwarting wage growth. Without wage growth, it will be hard to grow consumer spending, the primary driver of the U.S. economy.
- Global trade disruptions could result from an escalation of the trade war with China or a new trade war with the European Union.
- Remote working, given the large number of white-collar employees working remotely and largely unsupervised, it remains to be seen if worker productivity and innovation can be sustained, which is required to slow the growth of inflation.
- Another wave of Coronavirus, or a variant, could re-emerge, causing the re-imposition of restrictions and wreaking havoc on recovering economies.
- The deficit resulting from all the stimulus spending by the U.S. government could threaten U.S. economic stability, the U.S. dollar, international trade, and interest rates.
This is a summary of the December 2021 Quarterly Market Monitor Report published by Market Insights LLC. NWFA members have exclusive access to the full report, which provides forecasts and analysis of economic, market, and industry conditions and trends affecting the North American flooring market. The report includes a historical and forecasted volume of dollar sales of total wood flooring (at mill sell price) per metro area and state. Separate reports are available for the United States and for Canada. The availability of the reports on a quarterly basis will provide NWFA members with current data that can help them develop business plans, prioritize inventory, and react to market conditions in a timely manner. NWFA members may download the full report by visiting nwfa.org.
Using two different methods to estimate the year-to-date calculated percent growth in dollar value consumption percent change for the first half of 2021 versus the same period last year for flooring types in the U.S., we see that the two methods are very much at odds. This is due to several reasons:
- During the second quarter of 2020, the U.S. closed parts of its economy to thwart the spread of the COVID-19 virus; therefore, the two periods are not truly comparable due to the unique nature of conditions in the second quarter of 2020.
- A significant portion of domestic shipments and imports during this year-to-date period were for inventory building to minimize product costs due to tariffs and coming price increases.
Santo Torcivia is president of Market Insights LLC in Reading, Pennsylvania. He can be reached at 610.927.2299 or storcivia@marketinsightsllc.com.