The crystal ball says 2006 will bring with it a drop-off in construction levels.
But don't mistake that crystal ball for a bubble. Or even bad news, for that matter.
The past year was probably the peak of the housing boom. The decline will begin this year, economists say. But overall, the construction market outlook looks a lot like 2004 - which, for companies in the industry, should feel something like an Olympian winning a gold medal despite not breaking the world record.
That's not to say there won't be challenges this year. The same thorn-in-the-side issues processors faced in 2005 remain: high costs of raw materials, energy and health care, and foreign competition.
Chief economists for the National Association of Home Builders in Washington, New York-based JPMorgan Chase & Co. and the Associated General Contractors of America in Arlington, Va., all concur that, while residential construction is likely to taper off from the record-breaking levels of 2005, the overall picture is still a pretty one.
JPMorgan economist David Seiders forecasts 1.94 million housing starts in 2006, down from about 2.06 million last year, but right in line with 2004's 1.95 million.
``For housing, it will be a systematic simmering-down process toward more sustainable levels of sales, production and price appreciation, as opposed to a full-blown cyclical contraction,'' he said in an end-of-year address concerning the 2006 outlook. ``In terms of single-family sales and starts, we'll basically be retracing the increases we saw in 2005, heading back to 2004's very healthy levels.''
James Glassman of JPMorgan dismissed the idea of a housing bubble.
``I don't think this is a bubble, and I don't think it's going to crash,'' Glassman said. ``It's a market that's maturing, and getting pricey. It's going to slow down on its own, and there's a lot of evidence this is starting to happen.
``The broad economy is in pretty good shape. I like thinking of the coming year as growth without the steroids.''
The continuing strength of the construction market should, in turn, bode well for plastics processors serving the construction sector. While builders contend with rising costs of plastic construction materials - an estimated 13 percent spike in 2006, said AGC economist Ken Simonson - builders of both residential and nonresidential projects are poised for another big year.
Simonson writes in his 2006 economic outlook that Bentonville, Ark.-based retail behemoth Wal-Mart Stores Inc. plans 300 new Supercenters in 2006, up from 266 last year. Major public projects like new school construction also are likely this year, he said.
Factor in rebuilding efforts in New Orleans, Mississippi and Florida after another active hurricane season, and you've got the makings of another interesting year ahead. The demand for manufactured housing alone will provide a boon to makers of various plastic products including vinyl siding.
Walt Hoyt, communications director for Valley Forge, Pa.-based CertainTeed Corp.'s Siding Products Group, said the firm expects a strong 2006 for vinyl siding.
Jery Huntley, president of the Vinyl Siding Institute in Washington, said the industry is carrying a lot of momentum into this year.
The same can be said of the composite decking industry. Homeowners building decks are switching to wood-plastic composites faster than music lovers are switching from compact discs to MP3s. It's an impressive market adoption rate. Just ask officials at Apple Computer Inc. who launched the popular (and plastic) iPod MP3 player.
Jim Abel, chief financial officer of Beachwood, Ohio-based Lamson & Sessions Co., said that despite higher pricing, low inventories and tight raw material supplies, the pipe market should be strong in 2006 as nonresidential end uses of underground pipe for conduit offset any losses in the residential construction market.
``We think it's going to be a very good year,'' Abel said.
Bob Walker, executive director of the Dallas-based Unibell PVC Pipe Association, which represents makers of underground PVC pipe used in water and sewage applications, agrees.
``Even the most dire predictions show that the construction market may be slightly off from , but nothing dramatic enough to derail the train we've been on for the past three or four years.''