April means springtime, and with apologies to the poet Lord Tennyson, my fancy has turned to thoughts of baseball, Wall Street earnings reports and macroeconomic data from the first quarter.
It's time to take a closer look at one of the most important indicators for the U.S. manufacturing sector and especially the plastics industry: U.S. housing starts.
At the end of 2017, my forecast called for a gain of 4 percent in the total number of new housing units started in 2018. And as I reported at that time, a gain of 4 percent would push the annual total up from just over 1.2 million units in 2017 to 1.25 million this year.
The data from the first quarter indicates that I need to raise my forecast a bit.
According to the latest report from the U.S. Census Bureau, the number of new houses started in March increased by 10 percent when compared with the same month last year. For the first quarter, the total was up by 8 percent.
Clearly, the trend this year is strong out of the gate. Therefore, I have raised the forecast for 2018 to a gain of 6 percent. This would put the annual total right at 1.275 million units. Due to obvious seasonal factors, the first quarter is always the weakest in terms of the number of houses started in the United States, and the residential construction sector will need to sustain solid momentum through the next two quarters to hit my new number.
This forecast is based on my expectations for a gradual acceleration in the pace of household formations as well as continued improvement in both the U.S. employment data and the household income figures. These positive factors will be partially mitigated by rising interest rates, rising house prices, and the loss of the tax deduction for interest paid on mortgages.
So, the overall picture for the residential construction sector and the manufacturers that supply plastics building materials remains bright. But as is always the case, a keener insight into this market segment can be gleaned from a deeper dive into the data.