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Construction Industry Momentum Slowed by Weather in Northeast, Midwest

May 02, 2014, 06:18 AM
Filed Under: Construction

According to analysts with Great American Group, a leading provider of asset disposition, valuation and appraisal services, the building materials industry experienced a trying first quarter due to harsh weather conditions, particularly in the Northeast and Midwest. After a strong fourth quarter in 2013, difficult building conditions marred the first months of 2014. However, although somewhat stagnant, the industry shows no signs of a significant retreat from the gains achieved to close out 2013.

While the industry experienced a strong fourth quarter in 2013, first quarter 2014 indicators have been modest at best. Although construction spending flattened in the early part of the year, the current pace remains ahead of year-prior totals. In particular, the residential market was hurt by poor conditions, but this was largely offset by improved nonresidential spending.

"Despite a decline in the rate of residential housing spending, the market remains buoyant," says Bill O'Brien, Great American Group associate director and building materials industry specialist. O'Brien notes that while "a devastating winter led to a predictable decline in housing starts in February," the overall health of the industry remains intact and primed for a more optimistic second quarter. Despite a decline in residential spending, housing completions and approvals for housing permits increased in February.

Interestingly, the inclement weather resulted in dissimilar pricing trends for softwoods and hardwoods. A lower level of construction activity hurt demand for softwood lumber and panels, resulting in excess supplies and declining prices. Conversely, inventories of hardwoods have remained low since the fourth quarter of 2013, a situation that was exacerbated by poor logging conditions, resulting from icy conditions.

Despite the disparate pricing trends, the strength of the industry as a whole indicates that pricing will remain steady to slightly bullish in the coming months. With improved weather, construction activity rises, resulting in greater demand for all building materials. Barring a major surprise, the construction market will remain well ahead of the recessional years and will continue on its slow but steady recovery.

Great American Group is a leading provider of asset disposition and auction solutions, advisory and valuation services, capital investment, and real estate advisory services for an extensive array of companies.

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