Prior to the Great Recession, the US housing market enjoyed strong growth before slipping into severe recession. Now the US housing and construction markets are again doing quite well and are likely to improve going forward. This has important implications for the US economy as well as for countries exporting construction machinery to the US.
In a world where meagre growth and an uncertain outlook seem to dominate the headlines, the US has gone the other way. When reviewing the big economic trends, the US real GDP growth is expected to grow around 2-3% in 2015, or at around the same pace as in 2014. This growth level is widely quoted as “below its potential”, and most forecasts point to stronger economic improvements in the coming years. The recent developments of jobless claims, consumer spending, retail sales and industrial production confirm these positive dynamics ongoing in the US economy.
On the back of this improving economy, construction activity has increased since mid 2011, but this year has seen the activity growing at a slower pace than in previous years. The recovering US housing market has been an important driver for the US economy in recent years, and it is likely that this trend will continue. Pent up housing demand supported by the improved employment outlook are positively impacting the housing market. The sentiment among builders is positive, with improving credit conditions and subsiding material price growth. There is also a much stronger traffic of prospective home buyers, which fuels residential construction. This is naturally driving housing starts and housing permits, which have also been growing positively although a bit weaker in 2014 than in the previous two years.
Household formation in the US is notably reduced since the recession, possibly driven by a demographic change related to young Americans choosing to live with family or roommates to cut costs. This has dampened the housing market somewhat and could be part of the explanation for why the housing market is not performing even stronger. The trend, however, is likely to improve going forward as both the economy and the population both continue to grow.
Although the increased construction activity has been primarily driven by residential construction spending, non-residential spending has also picked up recently. Non-residential spending usually lags behind residential spending, and while residential spending growth has been somewhat moderate throughout 2014, non-residential spending growth has improved greatly the last 12 months. This is likely to continue given an improved business climate supporting stronger commercial investment and other leading indicators such as increased architectural billings.
All in all, these fundamental improvements translate into a positive, longer-term market view for construction equipment demand in the US.