the outlook for the u.s. economy and home improvement spending james gillula managing director,...

The Outlook for the U.S. Economyand Home Improvement Spending

James GillulaManaging Director, Consulting Services

IHS Global Insight

April 2014

Copyright © 2009 IHS Global Insight. All Rights Reserved.

2

Overview

• The U.S. economic outlook:

• Components of GDP growth

• Determinants of consumer spending

• Interest rates and the housing market

• Outlook for home improvement product sales:

• Changing balance of factors driving the market


3

Inventory swing and bad weather slow Q1 this year, but growth will accelerate.

20

12

Q1

20

12

Q2

20

12

Q3

20

12

Q4

20

13

Q1

20

13

Q2

20

13

Q3

20

13

Q4

20

14

Q1

20

14

Q2

20

14

Q3

20

14

Q4

20

15

Q1

20

15

Q2

20

15

Q3

20

15

Q4

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

(Real GDP, annualized growth rate)


4

2014 Growth: Stronger consumption and investment, less drag from declining government spending.

Net Exports

Government Spending

Change in Inventories

Residential Investment

Nonresidential Construction

Investment in Equipment

Consumption

-0.5 0.0 0.5 1.0 1.5 2.0

Sources of Growth(percentage points contributed to real GDP growth)

2014 2013 2012


5

Employment growth will begin to accelerate later this year.

2011:1

2012:1

2013:1

2014:1

2015:1

2016:1

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4-quarter Change in Nonfarm Employment

Millio

ns

Unemployment rate falls below 6.5% by mid-year.


6

Growth of real income will be stronger in 2014.

2008 2009 2010 2011 2012 2013 2014 2015-1%

0%

1%

2%

3%

4%Growth of Real Disposable Income

Tax increases held down disposable income growth in 2013.


7

While stock market wealth has surged, home values are only now reaching the previous peak.

2007:2

2007:4

2008:2

2008:4

2009:2

2009:4

2010:2

2010:4

2011:2

2011:4

2012:2

2012:4

2013:2

2013:4

2014:2

2014:4

2015:2

2015:4

-15

-10

-5

0

5

10

15

20

Change in Household Wealth Since 2007:Q2

Equities Nonfinancial Assets Net Worth

$tr

illio

ns

“Wealth effect” on spending from stock markets gains is smaller.


8

The pace of consumer spending growth will build over the next two years.

2011:1

2012:1

2013:1

2014:1

2015:1

0%

1%

2%

3%

4%

Real Consumer Spending Growth

Qu

art

erl

y c

ha

ng

e a

t a

nn

ua

l ra

te

Annual Percent Change 2013: 2.0% 2014: 2.5% 2015: 3.1%


9

Fed will hold short term rates near 0% until mid-2015, but long-term rates continue to edge up.

20

08

:12

00

8:2

20

08

:32

00

8:4

20

09

:12

00

9:2

20

09

:32

00

9:4

20

10

:12

01

0:2

20

10

:32

01

0:4

20

11

:12

01

1:2

20

11

:32

01

1:4

20

12

:12

01

2:2

20

12

:32

01

2:4

20

13

:12

01

3:2

20

13

:32

01

3:4

20

14

:12

01

4:2

20

14

:32

01

4:4

20

15

:12

01

5:2

20

15

:32

01

5:4

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Fed Funds Rate 10-Year Government 30-Year Conv. Mortgage


10

Existing home sales have lagged since October, but we expect a turnaround.

2010:1

2011:1

2012:1

2013:1

2014:1

2015:1

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5Existing Home Sales

Millio

ns

Annual Percent Change 2013: 8.9% 2014: 1.8% 2015: 11.7%


11

Housing starts will rise to meet demand.

2010Q1

2011Q1

2012Q1

2013Q1

2014Q1

2015Q1

2016Q1

0.0

0.4

0.8

1.2

1.6

2.0Total Housing Starts

Millio

ns

Annual Percent Change 2013: 19% 2014: 18% 2015: 34%


12

Multi-family share of housing starts is at a 27-year high.

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Multi-family Share of Housing Starts


13

Sales of Building Material Dealers slowed after a mid-2013 surge.

20

06

Q1

20

07

Q1

20

08

Q1

20

09

Q1

20

10

Q1

20

11

Q1

20

12

Q1

20

13

Q1

-15%

-10%

-5%

0%

5%

10%

15%

20%

(Percent change vs. year earlier)

Building Material Dealers Total Retail Sales


14

Volatile data on homeowner spending on residential improvements show 4% growth on an annual basis.

2009Q1

2010Q1

2011Q1

2012Q1

2013Q1

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Homeowner Residential Improvement Spending(Percent change vs. year earlier)

Annual Percent Change: 2011: 8.4% 2012: +4.2% 2013: +3.5%


15

Home Improvement Products sales growth will accelerate.

2011Q1

2012Q1

2013Q1

2014Q1

2015Q1

2016Q1

0%

2%

4%

6%

8%

Home Improvement Products Market(Percent change vs. year ago)


16

Home Improvement Products Market Forecast

2013 2014 2015

Sales in Nominal Dollars

Total 4.2% 6.5% 7.0%

Consumer Market 4.5% 6.4% 7.4%

Professional Market 3.4% 6.8% 6.0%

Sales in Constant Prices

Total 3.0% 5.0% 5.3%

Consumer Market 3.5% 5.3% 5.7%

Professional Market 1.4% 4.3% 3.0%


17

Price increases for home improvement products will remain modest.

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

-5%

0%

5%

10%Home Improvement Product Prices (annual percent change)

Consumer Market Profesional Market


18

Thank You

James Gillula, PhDManaging Director, Consulting Services

IHS Global Insight

(202) 481-9217

[email protected]

mailto:[email protected]

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