Retail sales through 2005 to expand at modest clip - Brief Article - Statistical Data Included

Home Channel News, Jan 22, 2001

Revised outlook from HIRI cites oil prices, spending habits as factors

TAMPA, FLA. -- The retail home improvement industry will slow this year, but sustain a steady growth rate in the years ahead through 2005.

In its revised forecast of industry sales, which it released last month, the Home Improvement Research Institute also foresees a more modest decline in home-building activity than some analysts are predicting for this year and an overall "soft landing" for the U.S. economy. However, it couches its evaluation by warning that political turmoil may impact economic conditions and could cause a steeper downturn.

HIRI estimates that home improvement product sales increased 6.2 percent in 2000 to $178.4 billion. Sales to professional customers outpaced those to homeowners, a trend that is expected to reverse itself this year, during which HIRI expects overall sales to advance 4.2 percent to $185.9 billion.

There are several factors behind HIRI's assessment of industry growth. The country's Gross Domestic Product, which grew by 5.3 percent in 2000, is expected to slow to a rate of 3.6 percent in 2001. However, HIRI believes that inflation caused by oil price hikes will subside (something that is already happening this month, as evinced by lower retail gas prices). Consequently, HIRI is not predicting a recession, although it also does not see GDP growth reaching 5 percent over the next four years, either.

HIRI's analysis was published about a month before the oil-producing nations in the Middle East threatened to cut production by three million barrels per day to keep prices high. That threat, coupled with the political instability caused by the Israeli-Palestinian conflict, places all optimistic estimates in jeopardy. Interestingly, HIRI expects that the threat, and the surge in energy prices in the western United States, would lead to more oil exploration and drilling to increase domestic energy capacity.

Not all factors that could sidetrack the economy are international, however. HIRI pointed out that, in the last three months of 2000, Americans spent more than they earned. The Institute predicts a savings rate, nationally, of zero for the immediate future, which could have a deleterious effect on the ability of homeowners to afford big-ticket items like home improvement projects. HIRI expects personal consumption levels to tail off and for disposal income to increase annually by 3.8 percent through 2005.

Regionally, HIRI expects the sales-growth rate of home improvement products over the next five years to be strongest in Mountain States which, coincidentally, are also expected to have the strongest increases in employment during this period. HIRI also expects Pacific States' home improvement sales to exceed the growth rate of the country as a whole. The East North Central states should experience the slowest growth rate. And the South Atlantic region should continue to be the country's largest in dollar sales of home improvement products, reaching $46.2 billion by 2005 from an estimated $35.9 billion in 2000.

                    NO BOOM TIMES, BUT NOT BUST, EITHER
    Annual disposable
   income % growth rate
00         6.2%
01         4.2%
02         5.5%
03         5.7%
04         4.8%
05         4.3%

The Home Improvement Research Institute foresees an economic "soft landing" that will slow, but not halt, the growth of retail product sales over the next five years. However, HIRI couches its projections with warnings about the effect of political turmoil on growth.

Source: Home Improvement Research Institute, NHCN chart.