At the end of October, the government released preliminary estimates of U.S. Gross Domestic Product (GDP) for the third quarter of 2009. The economy grew by an unexpectedly strong 0.9% versus the second quarter, which translates into annualized growth of 3.5%.
Both consumer spending and business investment increased, providing further evidence that the green shoots are beginning to sprout for real. Although the recovery will remain uneven until unemployment starts to decline, there is some good news for wholesaler-distributors.
Trends of particular note:
Keep in mind that we are coming off a dramatically lower base level. Annualized revenues of building materials and construction wholesale distributors are now running at $98.4 billion compared to $145 billion in 2006, suggesting that substantial overcapacity remains in this sector. New housing starts should increase next year to about 750,000 units, and the easy credit terms that helped to inflate the bubble are unlikely to return for at least 10 years (if ever).
Foreclosures and oversupply will continue to exert downward pressure on pricing. The remodeling market will also recover but remain below the bubble year levels. Cash-out refinancings, which support the remodeling market, totaled $1.1 trillion from 2003 to 2007. In contrast, less than $45 billion of equity was cashed out in the first half of 2009.
This forecast is driven by the recovering industrial economy. Manufacturing capacity utilization grew at a 7.7% annualized rate in Q3. Even if we exclude the cash-for-clunkers auto manufacturing boost, output rose by a still healthy 3.8% last quarter.
U.S. exports should accelerate because the rest of the world is recovering faster than us, although the most recent trade data (from August) still shows tepid growth. Additionally, exports will be helped by the weakening dollar. The increasingly perilous state of our nation’s finances will likely lead to more dollar weakness.