Will Construction Decide the Fate of the Building Materials Industry in 2017?
It’s easy to forget that, connected though they may be, building materials and construction are two distinct industries.
That said, they almost always experience similar economic challenges or act as augurs to one another’s success or failure. While one might think building materials would inform construction more often than the other way around – changes to a product, after all, could greatly alter how a user uses it – in many ways the reverse is just as true.
What current construction trends will impact how building materials manufacturing performs this year?
U.S. economy stabilizes and takes off in 2017
Simply put, if people are building, the building materials industry can expect good sales numbers.
According to the American Institute of Architects, construction will soon overcome the stagnancy it struggled against at the tail end of 2015 and throughout 2016. This year, spending on construction is projected to grow by 6 percent, with a majority of investment coming from the public sector (government and residential). In theory, this comports with current events in Washington, D.C. The Hill reported the Trump administration plans to wheel out a “massive rebuilding package” in the president-elect’s first 100 days in office.
The AIA stipulates, however, these increases depend entirely on good performances from volatile variables such as moderate job growth, continued housing market recovery, and both national and international confidence in American manufacturing. Estimates from Metrostudy show about three new construction jobs were created for every house built in 2016, so the success of building materials as fed by construction may be somewhat self-sustaining as far as the job market is concerned. After all, with larger construction workforces, contracting teams can take on more projects and require more supplies to do so.
Housing too should see a good year in 2017, with many economists predicting more than 6 million existing home sales, according to Gord Collins, as well as the creation of 160,000 new homes. The latter figure should carry on annually to 2024. That’s huge for construction and building materials – as Value Line noted, residential housing represents about 60 percent of all domestic construction spending.
Can construction take its services online? And can building materials manufacturing keep up?
Tech disruption may push construction out of pace with manufacturing
Widespread, cross-industry innovation and tech adoption throughout the private sector have only highlighted how little and how infrequently building materials and construction upgrade. Perhaps the resistance to change has something to do with the timelessness of these trades.
Nevertheless, the numbers don’t lie: In its 2016 industry digitization index, McKinsey rated construction the penultimate least digitized industry, one step ahead of “agriculture and hunting.” As the U.S. government plans to repair its crumbling infrastructure to boost the GDP, construction will have to rise to the challenge and implement new, tech-savvy methods for managing large-scale projects.
In turn, the building materials industry should ready itself for a big change. It is, after all, generally easier to upgrade the service sector than it is to upgrade means of production. Distribution too will factor heavily into the interplay between construction and building materials. As more contractors use the internet and apps to price shop, manufacturers must be ready to balance traditional brick-and-mortar channels with omnichannel logistics, all while keeping consumers happy and their brand value high.