Industry must T,:,gj*tough challenges

President, Lock Division Schlage Lock Company

I r rfes BEEN rather self-gratify- I ing to see my prediction last December of a strong, but slow growing construction market characterize this year's activities. Despite the dashing of overly op- timistic expec-tations. 1985 has been a year of record construction activitycontinuing an upward spiral that has lasted three years.

Now, with three years of expansion and recovery behind us, it becomes crucial to determine just how vulnerable the outlook for 1986 really is. Despite lower interest rates and a rising GNP, the second half of 1985 has seen a slowing in the pace of housing starts and the appearance of saturated markets. The business climate is very. different from last year with both the consumer and corporate sector taking on increased debt, the continued high value of the dollar triggering record trade deficits, and the overhanging federal deficit discouraging any further declines in interest rates.

Next year will be characterized by a continuation ofthese "drags" on the economy. While stable interest rates over the past year have provided economic support, they are still too high to provide the much needed economic stimulus to trigger more

Story at a Glance

Overextended, unbalanced market...anemic growth pros. pects...1.7 million housing starts...more single family homes than multiples...renova. tion will be growth sector.

rapid economic growth. Thus, as we embark on 1986, we enter a marketplace overextended, unbalanced, and facing anemic growth prospects. In response, the building industry will need to adapt to growth prospects facing a mature construction market with changing technological needs.

Because of the stable inflation, interest rate picture and a slowing economy, we can expect a further decline in long term interest rates in the first half of 1986. As a result, housing starts will continue to be an important segment in the 1986 picture with annualized rates strongest in the first quarter gently sloping downward as the year draws to a close. Housing starts will repeat their 1.7 million level of 1985 but we will see a change in the ratio of single to multi-family units. Single family housing starts will increase 790 while multi-family starts will decline by l09o due to anticipated

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