Inflation, and other macro highlights
A recent presentation hosted by the National Lumber and building Material Dealers Association gave a platform for a pair of seasoned industry analysts to share their observations on the state of the building supply industry. Here are some of the highlights from Matt Saunders and Chris Beard of John Burns Research and Consulting (JBREC).
Demand appears to normalize
In the researchers’ survey of dealers, they were asked to describe demand as weak, normal or strong. According to Vice President, Building Products Research Chris Beard, despite overall order strength, strong demand decreased in April across all customer types year over year.
"But we really don't think this is necessarily a bad thing,” Beard said, “because what we see in the accelerating orders, coupled with the fact that we're seeing fewer order decelerations, dealers are really reporting normalized demand across most customer types this year.”
Expect a soft landing
The analysts at JBREC believe the U.S. economy is going to avoid “what we’re calling the most anticipated recession that hasn’t happened,“ Senior Vice President of Building Products Research Matt Saunders said. “We think we are going to engineer a soft landing. However, we are mindful of the macroeconomic risks to that view.”
Inflation is the issue of the day.
Saunders continued: “And really we're watching this really carefully because the longer that inflation remains elevated, the longer we're going to be in a higher-for-longer interest-rate environment. And that's when the potential for broader cracks in the economy to appear.”
Dealer orders are up.
In April — the last month for which data was available— 60 percent of dealers reported orders were accelerating month over month, according to data presented by the analysts.
That figure is the highest April reading in two years. What’s more, only 3 percent of dealers reported that orders were decelerating. That’s a far cry from April 2023 and April 2022, when a respective 32 percent and 31 percent of dealers reported decelerating building material orders.
The category with the largest percent gain for that period was kitchen, bath cabinetry, up 13 percent, followed by Windows & doors, up 11 percent. (See chart)
Beard added: “What’s interesting is only 3% of dealers reported decelerating building materials orders month of the month, meaning only 3% of dealers said that they're actually seeing fewer orders coming in April versus March.”
Watching the 30-year fixed rate.
JBREC anticipates the 30-year-fixed-rate mortgage to end 2024 with an average of 6.6%. “We do anticipate the Fed will start easing rates towards the end of this year,” Saunders said.
Supply chain is improving.
“Supply chain snarls have eased and this has really helped to reduce inflation,” Saunders said.
But be we’re not out of the woods.
Geopolitical events are at work in the Red Sea region, causing cargo ships to be diverted from the Suez Canal to a longer route around the Horn of Africa and up the Cape of Good Hope. “We're watching this very carefully as are building product manufacturers,” Saunders said. He pointed to Masco and Fortune Brands Innovations as examples of companies that have publicly flagged the issue. FBI has announced investment in a more diversified supply chain to mitigate just such potential disruptions.