Home Improvement Products Market

Forecast Update, September 2016

IHS Markit/HIRI Report No. 60

Report prepared for the

Home Improvement Research Institute

By

IHS Markit 1150 Connecticut Ave. NW

Suite 401

Washington, DC 20036

Contents

1. Executive Summary ........................................................................................................ 1 2. Home Improvement Products: Consumer Market ......................................................... 4

Consumer Spending Continues to Show Strong Growth .............................................. 4 Retail Sales Trends ....................................................................................................... 5 Consumer Market Forecast ........................................................................................... 5

3. Home Improvement Products: Professional Remodeler Market ................................. 11 The Housing Market is Steadily Improving................................................................ 11

Professional Market Forecast Update ......................................................................... 12 4. Home Improvement Products Compared To Materials in New Residential Construction

............................................................................................................................... 13

5. Risks to the Forecast ..................................................................................................... 15 6. The Regional Economic Outlook.................................................................................. 16

Regional Overview of Home Improvement Products Market .................................... 17

The Northeast .............................................................................................................. 21 The South .................................................................................................................... 28 The Midwest ............................................................................................................... 38

The West ..................................................................................................................... 45 Appendix A. Home Improvement Product Markets Estimates: US and Census Division

by Market Segment ............................................................................................... 52 Appendix B. Home Improvement Products Market Estimates and Forecasts: Overview of

Sources and Methods .......................................................................................... 133

133

Appendix B. Home Improvement Products Market Estimates and

Forecasts: Overview of Sources and Methods

Market Definition

Limited to products purchased, exclusive of any labor.

Includes products purchased for existing residential structures (excludes new housing and nonresidential).

Includes all products typically used in home maintenance repair, and improvement (see Table B.1).

Excludes some items sold by home centers: housewares, auto parts, sporting goods, delivery and installation services.

Market Segments

Consumer Market purchases by end users.

> Consists of sales of retail stores to consumers.

> Includes consumer purchases for own use or installation and consumer

purchases for contractor installation.

> Estimates of total sales and sales in each of 21 merchandise lines.

Professional Market purchases by professional contractors.

> Value of materials and products in jobs done by professionals...

> ... including sales through all channels of distribution (wholesale, retail,

manufacturer).

> Estimates of total sales (no separate estimates of sales by merchandise

line).

Consumer Market

Historical estimates for benchmark years based on Census of Retail Trade: 1992, 1997 2002, 2007 and 2012.

Historical estimates for non-Census years based on monthly retail sales statistics.

Forecasts based on:

> Models constructed by IHS Markit

> driven by IHS Markit macroeconomic forecasts, US and regional.

134

Table B.1

Products Included in the Market Definition

MERCHANDISE LINE DESCRIPTION

Hardware cabinet hardware, screws, nuts and bolts, door hardware, other hardware products

Tools & Equipment hand tools, portable electric power tools, power air tools, stationary/bench-top power tools, accessories (blades, bits, etc.), ladders & scaffolding

Plumbing Fixtures & Supplies kitchen & bathroom plumbing fixtures, fittings and supplies

Electrical Supplies lighting fixtures, light bulbs, ceiling fans, boxes, devices, and other electrical supplies; electrical wiring and related products

Nursery Stock and Soil Treatments outdoor nursery stock: trees, shrubs, bedding plants, bulbs, sod, seeds, etc., fertilizer, lime, chemicals & other soil treatments

Lawn & Garden Tools, Equipment & Supplies

lawn & garden machinery, equipment & parts, farm machinery, equipment & parts, lawn & garden tools, all other farm supplies, grain and animal feed, and all other lawn & garden supplies, fencing, irrigation equipment & sprinklers (but excluding cut flowers and indoor plants)

Dimensional Lumber & Boards, Treated & Untreated

dimensional lumber, non-treated; treated lumber; boards, all grades

Panel Products, Engineered Wood Products & Building Components

engineered wood products, including glue-lam, laminated veneer lumber (LVL), wood I-joists, etc.; structural panels, including softwood plywood & oriented strand board (OSB); other panel products, including hardwood plywood, waferboard & particle board/sanded/specialty plywood; building components, including floor trusses, framed wall panels, etc.

Gypsum, Specialty Boards & Treatments

gypsum, specialty boards & treatments, including plaster, tape & joint compounds

Insulation & Weatherization Products

insulation (all types) & weatherization products

Kitchen & Bath Cabinets & Countertops

kitchen & bath cabinets & countertops, including bathroom vanities & vanity tops, medicine cabinets, etc.

Windows, Skylights & Patio Doors windows, skylights & patio doors, including wood or wood clad, vinyl, aluminum, or other

Siding & Exterior Trim siding, exterior trim and soffit

Roofing & Supplies roofing (all types), including roofing supplies

Doors & Moulding doors & moulding, including interior/exterior pre-hung or slab doors, garage doors, mouldings & jambs

Other Building Materials connectors, including joist hangers, tie-downs, etc.; steel studs; glass; masonry supplies, including cement, lime, plaster, brick, etc.; ceilings & ceiling systems; heating & HVAC units, ductwork, heating stoves, including wood, kerosene & oil & prefabricated fireplaces; refrigeration equipment & supplies; and all other building/structural materials & supplies; wallpaper, other flexible wallcoverings

Paint & Preservatives interior paint, exterior paint; stain, varnish, shellac & other coatings

Paint Sundries & Other Supplies painting equipment, tools, brushes, scrapers, etc., painting supplies, compounds & other consumable materials

Hard-surface Floor Coverings hardwood flooring, tile, sheet goods and other hard-surface floor coverings & accessories

Soft-surface Floor Coverings textile floor coverings and accessories

Major Household Appliances refrigerators, freezers, dishwashers, ranges, microwaves, washers & dryers, (but excluding vacuum cleaners, sewing machines, dehumidifiers, room air-conditioners, and outdoor gas grills)

135

Consumer Market Estimates: Benchmark Years

Census of Retail Trade data provide:

> Total sales of each store-type category that handles home improvement

products (by region).

> Distribution of sales by merchandise line for each store type in each region

(see Table B-2 for US data for 2012).

> Share of total sales made direct to consumers for each store type (data on

how these shares differ by merchandise line were developed by a survey

of companies in selected store-type categories).

Consumer Market Estimates: Non-Census Years

Start with regular Census Bureau reports on retail sales by store type for the US

Model-generated estimates of sales by store type by region.

Apply sales-to-consumer ratios to total sales for each store type in each region.

Apply merchandise line distribution for each store type in each region to its adjusted total sales.

Total sales of each merchandise line in a region computed as sum across store types.

Consumer Market: Forecasts

IHS Markit quarterly forecasting models of retail sales by store type:

> For US and nine regions.

> For store types with significant sales of home improvement products.

Sales model forecasts are tied to macroeconomic variables in current IHS Markit Control forecasts for US and regions.

Ratios of share of sales to consumers are held fixed over the forecast period; product mix of store types in nominal dollars is influenced by relative price change of

products.

For each of the 21 merchandise lines, nominal sales are deflated with a different price index (see Table B-3).

Variables in Consumer Market Forecasting Models

Relative price (store type price index divided by overall retail sales price index).

Real disposable income.

Real household wealth.

Consumer confidence (University of Michigan index of consumer sentiment).

Existing home sales.

Housing starts.

Table B.2

Shares of Sales by Merchandise Line in Each Store Type: US in 2012

(Percent)

Floor Covering

Stores

Home Centers

Paint &

Wallpaper Stores

Hardware Stores

Other Building Material Dealers

Lawn & Garden

Equipment Stores

Dept. Stores

Other General

Merch Stores

Furniture Stores

Household Appliance

Stores

Home

Electronics Stores

Total Sales 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Sum of HIRI Market Merchandise 86.9 83.0 98.8 82.4 95.3 54.2 4.5 3.4 3.3 61.1 2.4

Hardware 0.1 4.1 0.2 19.8 1.8 0.7 0.1 0.2 0.0 0.2 0.0

Tools & Equipment 0.1 5.9 2.0 24.7 0.9 1.0 0.5 0.5 0.0 0.2 0.0

Plumbing Fixtures & Supplies 0.0 5.6 0.1 6.1 9.1 0.0 0.3 0.2 0.0 0.2 0.0

Electrical Supplies 0.0 8.2 0.1 5.7 12.8 0.0 0.4 0.9 0.5 0.2 0.0

Nursery Stock & Soil Treatments 0.0 3.8 0.0 2.9 0.1 33.8 0.3 0.7 0.0 0.0 0.0

Lawn & Garden Equip & Supplies 0.0 7.0 0.0 5.3 0.5 18.1 0.7 0.4 0.0 0.6 0.0

Dimensional Lumber & Boards 0.0 5.2 0.0 1.8 12.2 0.0 0.0 0.0 0.0 0.0 0.0

Plywood & Related Products 0.0 1.6 0.0 0.6 7.5 0.0 0.0 0.0 0.0 0.0 0.0

Gypsum & Specialty Boards 0.0 1.3 0.0 0.4 1.7 0.0 0.0 0.0 0.0 0.0 0.0

Insulation & Weatherization Products 0.0 0.6 0.0 0.5 1.3 0.0 0.0 0.0 0.0 0.0 0.0

Kitchen & Bath Cabinets/ Countertops 0.0 4.5 0.0 0.5 6.1 0.0 0.0 0.0 0.0 0.0 0.0

Windows, Skylights & Patio Doors 0.0 1.9 0.1 0.1 5.7 0.0 0.0 0.0 0.0 0.0 0.0

Siding & Exterior Trim 0.0 0.7 0.0 0.2 2.4 0.0 0.0 0.0 0.0 0.0 0.0

Roofing & Supplies 0.0 2.6 0.0 0.5 5.8 0.0 0.0 0.0 0.0 0.0 0.0

Doors and Molding 0.0 3.6 0.1 0.5 6.0 0.0 0.0 0.0 0.0 0.0 0.0

Other Building Materials 1.1 6.6 1.6 4.2 16.4 0.4 0.0 0.0 0.0 0.2 0.0

Paint & Preservatives 0.3 4.6 78.4 5.1 0.6 0.1 0.1 0.2 0.0 0.0 0.0

Paint Sundries & Other Supplies 0.2 3.0 15.4 2.6 0.3 0.1 0.0 0.0 0.0 0.0 0.0

Hard-surface Floor Coverings 39.3 2.7 0.3 0.1 3.9 0.0 0.0 0.0 0.2 0.0 0.0

Soft-surface Floor Coverings 45.9 2.7 0.4 0.1 0.2 0.0 0.2 0.2 1.2 0.2 0.0

Major Appliances 0.0 6.6 0.0 0.7 0.2 0.0 1.8 0.1 1.3 59.4 2.3

137

Table B.3

Price Indexes Used to Deflate Sales by Merchandise Line

Merchandise Line Price Index

1 Hardware PCE price index, Tools, hardware, and supplies

2 Tools & Equipment PCE price index, Tools, hardware, and supplies

3 Plumbing Fixtures & Supplies PPI, Plumbing fixture fitting & trim

4 Electrical Supplies PPI, Current carrying wiring devices

5 Nursery Stock & Soil Treatments Retail price index, Retail nurseries and farm supply stores

6 Lawn & Garden Equip & Supplies Retail price index, Retail nurseries and farm supply stores

7 Dimensional Lumber & Boards PPI, Lumber

8 Plywood & Related Products PPI, Plywood

9 Gypsum & Specialty Boards PPI, Gypsum products (wallboard)

10 Insulation & Weatherization Products PPI, Mineral wool for structural insulation

11 Kitchen & Bath Cabinets & Countertops PPI, Wood kitchen cabinets and cabinetwork

12 Windows, Skylights & Patio Doors PPI, Metal window & door

13 Siding & Exterior Trim PPI, Sheet metal products

14 Roofing & Supplies PPI, Roofing asphalts & pitches, coatings & cements

15 Doors and Molding PPI, Millwork

16 Other Building Materials PPI, Construction materials

17 Paint & Preservatives PPI, Paints & coatings

18 Paint Sundries & Other Supplies PPI, Paint & varnish brushes, rollers & pads

19 Hard-surface Floor Coverings PCE price index, Floor coverings

20 Soft-surface Floor Coverings PCE price index, Floor coverings

21 Major Appliances PCE price index, Major household appliances

PCE = Personal Consumption Expenditures PPI = Producer Price Index

138

Professional Market: Historical Estimates

Primary Sources: Estimates for years through 2007 are based on Census Bureau C-50 reports on Expenditures for Residential Improvements and Repairs. For years 2008-

2013, historical estimates of homeowners' expenditures on additions and alterations are

from Census Bureau C-30 reports on the value of construction put in place, with

expenditures on additions and alterations for rental units and all maintenance and repair

spending estimated using a statistical model. Estimates for 2013 and later are based on

investment in residential improvements as reported in the National Income and Product

Accounts.

The share of materials in total expenditures on improvements and repairs is estimated from input-output data from the Bureau of Economic Analysis, and...

... applied to total expenditures to determine value of installed materials.

C-50 data include the value of materials purchased directly by consumers (whether for contractor or own installation).

> These are removed from the total value of materials to avoid double-

counting with Consumer Market estimates.

The final Professional Market figure is the value of materials purchased and installed by contractors.

Professional Market: Forecasts

IHS Markit forecast of investment in residential improvements as reported in the National Income and Product Accounts

Share of materials varies over time as a function of differences in expected price increases for construction materials and construction labor.

Share of materials purchased directly by consumer projected based on trend of recent years.

Historical estimates and forecasts of Professional Market converted to constant dollars using a price deflator formed as a weighted average of price indexes for major categories

of building materials.

139

States in Census Divisions

New England Middle Atlantic East South Central West South Central

Maine

New Hampshire

Vermont

Massachusetts

Rhode Island

Connecticut

New York

New Jersey

Pennsylvania

Kentucky

Tennessee

Alabama

Mississippi

Arkansas

Louisiana

Oklahoma

Texas

South Atlantic East North Central West North Central Mountain

Delaware

Maryland

D.C.

Virginia

West Virginia

North Carolina

South Carolina

Georgia

Florida

Ohio

Indiana

Illinois

Michigan

Wisconsin

Minnesota

Iowa

Missouri

North Dakota

South Dakota

Nebraska

Kansas

Montana

Idaho

Wyoming

Colorado

New Mexico

Arizona

Utah

Nevada

Pacific

Washington

Oregon

California

Alaska

Hawaii

New England

Middle Atlantic

South Atlantic

East North Central

West South Central

EastSouthCentral

West North CentralMountain

Pacific

MI

CA

AK

HI

NJ

MDDE

KY

WV DCVA

MA

NH

RIID

AL

AZAR

CO

CT

FL

GA

IL IN

IA

KS

LA

ME

MN

MS

MO

MT

NE

NV

NM

NY

NC

ND

OH

OK

OR

PA

SC

SD

TN

TX

UT

VT

WA

WI

WY