With the recent suprime scare, there has been quite a bit of a downturn recently on the residential side of building materials. However, an anaylst we spoke to this week feels that the downturn may still have lower to go, and may extend into commerical building materials as well.
TWST: What’s the evidence that we’re beginning to see a commercial downturn?
Mr. MacGregor: We do a lot of surveying of privately owned construction materials companies across the United States. We’re hearing of slowing orders, some programs being deferred. Some of this is to be expected. If you look at the historical data, commercial construction spending, certainly in retail, tends to lag residential construction by 12 to 18 months. Intuitively it makes sense. You build a number of homes in a new area, after which you need to build strip malls and other commercial infrastructure that would accompany that type of residential buildout. If you are not building houses for a period of 12 to 18 months, the construction of commercial retail really begins to slow down rather dramatically; that is where we are now. As far as office space is concerned, that generally tends to be a little more associated with slowing in the economy. We’re seeing more evidence of that on the coasts than we are in the middle of the country, but my guess is that it won’t be very long before we see this trend spread to the central regions.
For the full building materials issue, with a complete overview of the sector and stock picks, click here.
Recommended Reading – Mastering management: managing in a downturn, FT.com
January 28, 2009
Companies Benefiting From the Downturn
January 29, 2009
Downturn in Detroit
July 29, 2009
Regional Banks Show Signs of Improvement During Downturn
March 16, 2012
Stewart Information Services Corp (STC) Well-Positioned for Refinance Downturn with Mix of Title Revenue
June 11, 2013
