AKRON, OHIO (Jan. 13, 10:30 a.m. EST) — Darwin Brown considers himself an optimist.
The economy, however, is making the chief executive officer take a step back.
“We're not going to be overly optimistic,” he said of conducting business in 2003. “We'll plan conservatively and hope for better.” His company, Dayton Technologies Inc. in Monroe, Ohio, is planning based upon a flat year in 2003. Brown said he expects $95 million in sales in 2002, with 5 percent growth in 2003.
The vinyl window market, which Dayton supplies, has not been overly robust this year. The material made inroads in the 1990s and growth now has slowed, according to Ducker Research Co. Inc., based in Bloomfield Hills, Mich. In 2002, vinyl windows performed better than the overall window market, but growth next year is likely to be flat.
Brown echoes the cautious optimism other officials have expressed across the diverse construction industry. Interest rates are the lowest in 41 years, yet the possibility of war looms.
“We're assuming that if there is actual conflict, that it will be swift and successful,” said Stanley Duobinis, forecasting director with the National Association of Homebuilders in Washington. “If instead it becomes a real military conflict that lasts through months and years, all bets are off. [But] the odds seem to be that the nastiest scenario has the lowest probability of happening.”
According to several leading market forecasts, construction's 2003 performance will be determined by a blend of state funding shortfalls and low interest rates, which have buoyed housing starts. Experts predict that housing will continue its strong performance, encouraged by the 1.25 percent prime rate.
NAHB's Duobinis predicts about 1.63 million housing starts in 2003, a very modest decline compared with nearly 1.69 million in 2002.
“It's a decline to a wonderful level,” Duobinis said in a recent telephone interview. “That makes 2003, while it's a down year, the highest year of at least the last 15 years, despite the decline. It's a very high level of construction. This is the weirdest recession we've ever seen in terms of housing.”
Duobinis said he believes the Federal Reserve Board has made its last cut; he expects the central bank to reverse policy in about 10 months.
On Dec. 4, CIT Group Inc., based in Livingston, N.J., released its “Construction Industry Forecast.” For the first time in five years, its outlook improved for 2003. The group's results are based on a survey of about 1,200 contractors and equipment distributors.
Of those surveyed who are builders, 62 percent said residential building remains the single greatest business opportunity in 2003. Commercial and nonresidential construction comes in second, with 19 percent of builders calling it the single greatest business opportunity.
Grant Thornton LLP sees a sore spot in state funding. Officials from the Kansas City, Mo.-based firm said many states have experienced significant budget shortfalls and 2003 projections are even worse, which will affect federal highway projects. States have to match federal funds for highway construction projects, officials said.
“Starting at the federal level, they're the ones who have the money to spend,” said Bruce Moorman, a partner with Grant Thornton. But states continue to struggle due to revenue shortfalls. “They do not have funds available to do matching.”
The vinyl siding industry grew this year by about 6 percent, according to industry estimates. That's much different than 2001, when the industry witnessed a slight decline of 0.6 percent.
“I foresee continued growth, as we have experienced in 2002, both in new construction and remodeling, with the trends on choices for the consumer continuing,” said Jery Huntley, executive director of the Vinyl Siding Institute in Washington.
PW Eagle Inc. officials gave their outlook for 2003 in its third-quarter conference call, indicating 2003 will be better than 2002 for PVC pipe.
“The anticipated combination of low inventories at the beginning of the year and some tightness in the supply of PVC resin make us optimistic that 2003 could be a good year for PW Eagle and the industry,” said Bill Spell, chief executive officer of the Minneapolis firm. He gave the forecast in the firm's third-quarter earnings release.
The PVC pipe business especially is tied to gross domestic product. Duobinis predicts a GDP increase of 2.3 percent for 2003's first quarter. In the second half, NAHB predicts an average 3.9 percent GDP growth.
“That's when we're finally going to start seeing positive job growth that you'd typically expect in a recovery period,” Duobinis said.