INSIGHT: US housing, construction recovery still murky

22 October 2009 16:38  [Source: ICIS news]

By Brian Ford

US construction future murkyHOUSTON (ICIS news)--Despite indications that US housing construction will recover in 2010, the road to more near-term recovery is less than certain, especially for other parts of the construction industry.

According to one US construction forecast, the number of US construction starts was expected to jump by 11% in 2010 on the strength of single-family homes, apartment buildings and stimulus-related highway and bridge construction.

However, commercial building construction was expected to drop by 4% in 2010, while manufacturing sector construction was expected to fall by 14%, according to the forecast.

The housing market is a key downstream consumer sector for the chemicals industry, driving demand for a wide variety of chemicals and chemicals-based products such as plastic pipe, insulation, paints and coatings, adhesives and synthetic fibres, among many others.

The American Chemistry Council (ACC) estimates that each new home built consumes about $16,000 (€10,720) worth of chemicals in building materials or processes used to produce them.

In non-residential construction, for every $1,000 spent, an average of about $200 goes to chemicals and plastics.

DuPont chief executive Ellen Kullman said on Tuesday the company was seeing market stabilisation and early signs of recovery, with the company all but sold out of titanium dioxide (TiO2) paint pigment.

But US polyvinyl chloride (PVC) buyers indicated on Tuesday they had a less optimistic outlook, saying that the US housing market would likely stage only a weak recovery in the near term.

“No housing recovery is on my radar screen,” one large pipe-grade PVC buyer said.

Sources said evidence for a negligible housing recovery was a pervading absence of demand in the vinyls sector.

Pipe-grade PVC is widely used for municipal and home-related piping and represents a major end-use segment for PVC.

Likewise, US sales in paints and coatings would likely decline for the rest of the year, despite signs that demand from existing housing has improved, major US producer Sherwin-Williams said.

“We keep looking for signs that recovery in paints and coatings is underway,” said Sherwin-Williams chief executive Christopher Connor, adding that significant challenges in commercial and residential real estate markets persist.

US coatings and sealants producer RPM International said this week its latest quarterly results exceeded expectations, but those numbers reflected an increase in sales of consumer house-repair products.

RPM chief executive Frank Sullivan said the company’s consumer segment offset a drop in the company's industrial segment. Sullivan attributed the drop, in part, to weaker demand from commercial construction. The segment might not improve until the spring of 2010, he said.

The Associated General Contractors of America, which represents primarily non-residential, municipal and highway construction firms, indicated on Wednesday the industry was still going through tough times despite federal stimulus funding.

Construction employment declined in 49 states and the District of Columbia in September compared with the same month last year, the contractors association said. Only Louisiana added construction jobs, it said.

The contractors association said it also found the number of states gaining construction jobs from August to September 2009 declined after increasing during the two previous months.

“While there’s little doubt construction employment would have been worse without the stimulus, there’s no question that the industry continues to shed jobs at an alarming rate,” said Ken Simonson, chief economist for the association. 

“The stimulus remains an important measure, but until private-sector demand for construction resumes, there’s little chance the current construction employment decline will turn around or even stop,” Simonson said.

Simonson also said that during September, 36 states shed construction jobs, 13 (including Washington, DC) adding construction jobs, and two states remaining stable, compared with 30 states losing, 16 adding and five (including Washington DC) remaining stable in August. 

Association chief executive Stephen Sandherr said: “These figures should serve as a sobering reminder that public investments alone are not going to turn around a trillion dollar construction industry.”

Even the recent US stimulus-fuelled gains in home construction may not last through the end of the year.

US home builders were losing confidence in a housing sector recovery as hopes fade for an extended federal tax credit for home buyers, the National Association of Home Builders (NAHB) said on Monday. The association said its housing market index (HMI) fell by one point in October to 18.

NAHB chairman Joe Robson said that the decline in home builder confidence “comes as no surprise” and was due to the fast-approaching 30 November expiration of the federal $8,000 (€5,360) tax credit for first-time home buyers.

The tax credit has been available since the first of this year but will expire at the end of next month, unless Congress extends it.

The NAHB and the National Association of Realtors (NAR) have repeatedly called on Congress to extend the tax credit for another year and to make it available to all home buyers, not just first-time purchasers.

US new residential construction activity rose by 0.5% in September from August, with a particularly strong 3.9% gain in single-family home building, the US Commerce Department said on Tuesday.

However, the department also reported that building permits issued in September fell by 1.2% last month compared with August, an indication that the crucial home construction sector would see another downturn when October’s figures are available.

Building permits are issued by local governments when contractors are ready to begin work on a new home, and the level of permits is seen as a reliable indicator of near-term activity in the sector.

The sharp fall-off in building permits suggests that housing contractors were holding back  in anticipation of the 30 November expiration date of the federal tax credit for first-time home buyers.

Sherwin-Williams’ Christopher Connor said: “It’s obvious from third-quarter sales results that many of our end markets are not yet participating in the rumoured economic recovery.”

($1 = €0.67)

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By: Brian Ford
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