Constructive Signs Up Ahead

Constructive Signs Up Ahead

A year of national tragedy, dot.com disasters and stock market turbulence spawns a surprisingly optimistic economic forecast for 2002. 

By Daina Darzin Manning

"Without a doubt, September 11 and, to some degree, the anthrax scare, put the brakes on a lot of new construction, and has affected the [kitchen and bath] remodeling market," states Tim Aylor, construction economist for the Raleigh, NC-based FMI, management consultants to the construction sector. "The interest in new construction residential dropped dramatically in September. The week or two after the [terrorist attack], people almost didn't want to go out of their doors. You saw less traffic through houses, and fewer offers being made despite almost record affordability."

"Our surveys of builders and remodelers show that there were some negative effects [because of 9/11]," confirms David Seiders, chief economist for the National Association of Home Builders, in Washington DC. "We're getting some inkling of an increase in the cancellation rate. Some of the builders are becoming quite cautious about their speculative building and extending options on land contracts."

"It's still not clear what the impact will be," adds Kermit Baker, director of the remodeling futures program for the Joint Center For Housing Studies, in Cambridge, MA. "It's negative, but how negative is still up in the air. Most remodelers are saying they're not seeing a dramatic impact on their workloads." 

While a host of projects already in progress seem to be cushioning the kitchen and bath industry from the worst of the impact, some report new orders are slowing a bit. "Some contractors were carrying 4-6 months of backlog," Baker notes. "[Clients] aren't canceling their projects [if] they had the financing together." However, he adds, "We had a horrendous employment report for October. People are pretty nervous about the underlying condition of the economy and that's not generally the time for discretionary expenditures like remodeling." 

Some believe this is particu-larly true in regions hard hit by the failure of many dot.coms, such as the Silicon Valley, San Francisco and Boston, as well as in states dependent on tourism as a primary source of income. Airport hub cities such as Dallas/ Ft. Worth may also also suffer economically because of the downturn in airline travel, while the Midwest faces challenges due to lost manufacturing jobs. 

But Kevin McNulty, executive v.p. and COO of the National Association of the Remodeling Industry (NARI), in Des Plaines, IL, insists, "Some of my busiest remodelers are in the Silicon Valley area. Americans are [still] spending." 

And Lawrence Yun, senior forecast economist for the National Association of Realtors, in Washington, DC, points out, "Overall, the housing sector has kept the economy from dipping into a recession prior to September 11. Post-September 11, it will again be the housing sector providing a buffer zone from sinking deeper."

A Shallow Recession

"The unanimous [opinion] seems to be, [this is] a recession of relatively short and shallow duration," notes Dick Titus, executive v.p. of the Kitchen Cabinet Manufacturers Association, in Reston, VA. While he forecasts a downturn in late 2001, he believes things will start to pick back up during the first or second quarter of 2002, "[with] no significant improvement until 2003. We anticipate a flat year coming up."

"[The economy] hasn't fallen anywhere near the level of previous recessions," points out Seiders. "The numbers look more like the mid-'90s, when the Fed had been tightening, and housing lost some ground on a temporary basis." He adds, "We did some trimming to our forecast compared to our pre-attack forecast. We trimmed economic growth numbers and jacked up our expectation of unemployment. We trimmed our estimates of housing starts and remodeling activity through the fourth quarter/first quarter and into the second. And then [we] installed quite a spirited comeback the latter part of [2002] and 2003."