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The building materials and construction industry is one of the most visible indicators of the health of an economy. After the doldrums of 2020, many companies bounced back with record growth, but the future is cloudy. In this post we look ahead to 2023, with a focus on the manufacturing side of the construction supply industry. 

The Building Materials and Construction Sector Enters a Cloudy 2023 

If recent years have taught us anything, it’s that crystal balls should come with fine print. Forecasting the 12-month outlook for any industry is an exercise in caveats. That said, there are real material factors that are already impacting the building materials and construction sector as we close out 2022.  

For instance, we can be reasonably sure that demand for new homes will flatline in year-over-year measurements, a consequence primarily of rising interest rates. Conversely, home remodels and upgrades should see an uptick, in addition to the already long backlog of projects that exist.  

While signs have pointed to stabilizing supply lines, certain common materials project to remain scarce for the foreseeable future. This could lead to continued price hikes in certain categories while prices drop precipitously in others.  

“Plan for market conditions to get worse before they get better,” writes Construction Dive. 

We can’t be certain whether a full-blown recession or “stagflation” will materialize in 2023. We do know that industry leaders such as Builders FirstSource are already cutting jobs. The company made $23 billion in revenue in its last fiscal year – up from $7 billion as recently as 2019 – as the price of lumber skyrocketed but are clearly preparing for a continued downturn.  

At his Zilliant MindShare 2022 keynote, noted Futurist Daniel Burrus proclaimed that: 

“Most of us don’t spend a lot of time with trends. Why? Because some happen and some don’t, and hey, things change, so that makes all the trends bad, right? Wrong … you need to plug into your future. After all, that’s where you’re going to make all the rest of your money, so maybe we ought to think about it a little bit more.” 

Let’s take Burrus’ advice and explore two interlinked trends that manufacturers in the building materials and construction industry must anticipate and proactively manage as we speed toward a new year. To do so, we’ll lean on some insights from Craig Webb of Webb Analytics.

Read about building materials distribution trends here. 

Listen to Craig’s recent appearance on our podcast: 

 

Trend: Softer Demand Will Deflate Prices, but Not Everywhere 

After years of cheap borrowing, the U.S. Federal Reserve has raised interest rates six times in 2022. The federal rate moved from 0.25% in March to 4% in November. Consumers are responding in kind.  

The National Association of Home Builders/Wells Fargo Housing Market Index recently fell to its lowest level since 2012. New single-family housing starts project to drop even lower in 2023. Builders, and thus the manufacturers that supply them with construction materials, are in many cases pausing price increases and even lowering base prices.  

Demand for new home builds might be broadly softening, but the backlog is churning steadily and other construction projects such as commercial real estate, infrastructure and remodel/repair are continuing apace. 

“We have more houses under construction at this moment than we've had almost in the history of this country. Partly that's because we had the big demand. And also because we were really, really bad at getting the supply chain to work properly,” said Webb. 

He added that certain geographies figure to continue to see new homes sprout up rapidly: 

“An interesting thing about construction and construction supply, I don't think there is any industry that is more geographically diverse than what goes into a house. So consequently, you can have all these different mini trends all going on at the same time.” 

What does this all mean? Certain segments of construction supply manufacturing will need to hold price steady or take decreases, while others can expect moderate increases despite the macroeconomic picture. For the average manufacturer that uses a wide range of building materials, this is a very difficult balancing act.  

Consider: Can you determine which customers, regions, and product categories can absorb continued price increases, and by how much? Can you detect and predict where price needs to be lowered? How do you avoid getting squeezed by a price-conscious market colliding with a cost environment that is not letting up? Do you serve a geography that is booming in concrete and steel demand but cratering in lumber – how do you rationalize your price moves in line with the competition? 

Your ability to answer these questions rests on how well you can consume and use your data. 

Anticipate price fluctuation by: 

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