Masonry Magazine February 1987 Page. 52
OUTLOOK FOR '87
by James H. Mitchell
President
Construction Products Manufacturing Council
1987 begins the wind-down of the 80s decade for the construction industry. It has been a decade of change, and it will continue that way.
It began with a high inflation rate that was brought down with high interest rates. Profit maintenance was maintained by price increases. With the end of rampant inflation, profit maintenance through price increases also ended. Stable or even lower material prices were triggered by runaway imports responding to the strong dollar in many segments of the construction products industry.
By mid-decade, growth stagnation set in with falling fuel costs and tumbling interest rates. The construction industry struggled to look for past patterns to guide it through. Instead, change has followed change and the end of the decade is rushing toward us as dramatic and even more uncertain change heads our way, and there are no old patterns to follow.
In most recent recoveries, in the previous two decades, at this stage of the recovery cycle new industrial building expenditures would be taking the place of declining commercial building expenditures as plant capacity would expand to meet the domestic demand that the recovery would have spurred.
Instead, plant capacity is still under-utilized and single family homes and retail construction activity are expanding in the fifth year of the recovery, both delayed from their usual position in the recovery cycle by the slow decline in mortgage rates.
A sizable segment of the domestic demand for goods is being met from foreign sources and the need for additional domestic manufacturing capacity awaits the effect of the declining dollar value and the hoped-for stimulus of export sales. The continued demand for single family homes reflects the demand that was displaced by high mortgage rates which are only now slipping below double-digit levels. Under these circumstances it becomes difficult to predict construction market demand.
Tax reform has major impact
Tax reform sets up another set of influences that we have not experienced. Tax reform will never end, but the new code will alter recent habits of profit generation through tax manipulation. The healthy construction material manufacturer will survive with profit the objective rather than market share or tax avoidance. The unhealthy will either disappear through bankruptcy or be reconstructed through mergers, takeovers, buyouts or retrenchments.
For the construction materials industry and contractors, the impact of the new tax law will be the end of the tax shelter-generated construction, fewer American construction product manufacturers, increasing numbers of offshore construction products, reduction or elimination of traditional services by manufacturers and distributors as profit growth and reduced white collar staffs are objectives of merger and buyout managements.
In the residential building market, initially, look for the gradual demise of such traditional residential product distributors as electrical and plumbing wholesalers. They will be replaced by multi-line, multi-outlet home center chains and discount
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