February Residential Construction, Permits and Starts

Written by: Peter Wright

The housing market is important to steel producers and processors for a number of reasons, some of which are not obvious. Not a lot of steel is consumed in wood framed houses but housing starts also lead sales of appliances and other steel items. Starts also positively affect ancillary non-residential construction such as schools and infrastructure. Steel consumption is driven by the growth of GDP, which is driven by consumer confidence which drives consumer spending, which drives job growth, which drives consumer spending…. This is either a virtuous or destructive spiral. Fortunately at present the spiral is heading upwards. All three indicators, confidence, spending and employment are important indicators of steel’s market direction. However, at the present time they are not the root cause of change in the steel market. At SMU we believe that housing as a proxy for the wealth effect is the real driver.