ACA Economic Climate Survey

By Allen Irish

As the coatings industry moves into 2016, it contin­ues to see solid, albeit not spectacular, growth. The U.S. economy has likewise experienced moderate growth since the end of the recession, with quarterly GDP growth rates typically falling in the 2-3% range, accompanied by continued low measured inflation. As this article was written, the markets continue to anticipate the Federal Reserve beginning the process of raising the benchmark rate from near zero, but the Fed seems reluctant to pull the trigger on a rate hike. Other significant market conditions that are affecting the economy in late 2015 are a strong dollar, as well as low energy costs that are being driven by a significant increase in U.S. crude oil and natural gas production over the past few years.

The National Association for Business Economics (NABE) compiles a consensus of macroeconomic fore­casts from a panel of 50 professional forecasters. The NABE panel predicted, in its October 2015 forecast, that GDP will grow “2.5% net of inflation on both an average annual basis and a fourth quarter of 2014 to fourth quarter of 2015 basis, a slight increase from the forecast in the previous survey conducted in June.” The NABE panel forecasts growth to marginally improve to 2.7% in 2016. This growth rate is comparable to that seen in the period after the recession ended in 2009, as shown in Figure 1. In terms of the major demand drivers for coatings, construction metrics remain strong, especially housing starts.

According to the N ABE panel forecast, housing starts are expected to increase from 1.0 million units in 2014 to 1.1 million units this year and 1.3 million in 2016. Overall, construction spending has recovered since the depths of the recession, but as shown in Figure 2, has not yet returned to the levels seen during the housing boom, with the residential portion of construction spending remain­ing well below the peak in 2006 (although nonresidential spend­ing has remained fairly steady during the entire period).