Expecting 4.7% home improvement sales growth in 2016
Wednesday, March 2, 2016
Posted by: Matthew Craig
HIRI/IHS Economics forecast for 2015 up 4.5%, Expecting 4.7% sales growth in 2016
Total home improvement products sales are expected to increase 4.5% in 2015 to $319 billion. The Professional Market is expected to increase 4.6% in 2015 over 2014 and the Consumer Market will see a sales increase of 4.5%.
We continue to expect home improvement product sales growth to accelerate over the next two years with 2016 forecasted to increase 4.7% over 2015.
National Economic Outlook
After minimal 1% growth in the final quarter of 2015, the US economy is expected to get back on track in the first half of 2016 despite the volatility in the stock market. Real GDP is projected to increase at annual rates of 2.4% in the first quarter and 3.0% in the second quarter, as solid gains in final sales to domestic purchasers are offset by weak export demand and a slowdown in inventory investment.
The net result will be real GDP growth of 2.4% in 2016 – a slight downward revision from the 2.8% forecast at the time of our September report on the outlook for the home improvement products market.
Job gains slowed in January after a very strong fourth quarter. But most indications are that the US job market is on solid footing, and we expect total nonfarm employment to increase 1.8% in 2016 after rising 2.1% in 2015.
Low price inflation and an acceleration of wage gains will support continued strong growth in consumer spending. We expect real consumer spending to increase 2.9% in 2016 after 3.1% growth in 2015.
Existing home sales in 2015 totaled 5.23 million – 6.3% above their 2014 level – and housing starts were up 10.6%. We project housing market activity to improve further, but the pace of growth of existing home sales is expected to slow to just 1% over the next two years.
Outlook for the Home Improvement Products Market
Sales of home improvement products through the major home center chains posted a strong fourth quarter and solid full-year results for 2015, with combined growth above 6%. But home improvement product sales through other channels of distribution lagged. Sales showed small increases at paint & wallpaper stores (2.0%), lawn & garden equipment & supply stores (1.2%), floor covering stores (1.9%), and appliance stores (0.5%), and department store sales declined 2.0%. Thus, we estimate total Consumer Market sales of home improvement products increased by 4.5% in 2015 to $232 billion – in line with our September 2015 forecast. Professional Market sales rose 4.6% in 2015, putting total home improvement product sales up 4.5% for the year.
With solid employment growth, a pick-up in wages, and housing market activity continuing to show modest gains, we expect the pace of home improvement product sales in 2016 to slightly exceed last year’s performance. We project total home improvement product sales to increase 4.7% in 2016, with Consumer Market sales up 4.8% and the Professional Market advancing 4.6%.
Our macroeconomic forecast shows a slight acceleration of growth in 2017 and 2018. Thus, although existing home sales are expected to plateau and the growth of housing starts will slow, we expect home improvement product sales to see continued gains averaging 4.6% over these two years.
The pace of growth will then slow somewhat in 2019-2020 as existing home sales post small annual declines and the growth rates of employment and personal income slow. The growth of total home improvement product sales is projected to average 3.9% over these final two years of the forecast period.
Growth rates of market size by segment for the current year and 5-year historical and forecast periods are as follows: