rebound, recovery

IIaOTAL home improvement prod- I ucts sales are projected to increase 6.5Vo lo reach $145.1 billion in 1997, reflecting the improved long-run outlook for interest rates, housing market activity and con- sumerspending.

Consumer market sales of home improvement products is a distant, politically incorrect memory. The direction, however, is up. crawling up from their slide and the American job machine of tb 1980s - are expected to grow by more than g%o in 1994, outpacing total retail sales growth. A rebound in lawn and garden equipment sales and continued srong growth of lumber and building materials sales will lead the consumer markel With a projected average armual growth of 6.37o over the next five years, this segment will total $99.3 billion in 1997.

Beneath slow growth is a seething caldron of activity. Daily we re greeted with headlines of change - downsizing at IBM and Woolworth, closures of miliary bases and curtailments at defense contractors. Less publicized are expansions of Wal-Mart and Dell and rebounding forhrnes for much of the U.S. auto industry. The potential of change in the communications industry is only hinted at when we consider the Bell Atlantic-TCl merger and linkup of ATTandMcCaw.

This may be Joseph Schumpeter's process of "creative destruction" personified. That is, it will generate employment and activity in areas not dreaned about.

The ongoing refinancing orgy continues for finns and individuals, with some back the second or third time. This is helping to ease the debt overhang of the 1980s and boost housing affordability to levels not seen in decades.

Inflation, the scourge of the late 1960s and 1970s, has, at least temporarily, been brought down to levels someone who went into a coma in the Eisenhower or Kennedv administrations would be comfortable with upon awakening. (How many of us in the late 1970s would have believed an inflation rate below 3Vo and 30 year mortgages &low 64o?) In a low inflation environmen! born again cost cutters re wmking to boost productivity. Assuming this continues, it will help set the stage for stronger income growth.

Moving into 1994, another year of low inflation and relatively slow growth seems in the cards. Fiscal policy has turned more restrictive with tax increases and slower spending growth. This will danpen growth. Defense cuts are not over, but the four-year decline in interest rates will help support housing, business investment and some consuner durables spending. Low inventories will stimulate production and declines in interest rates overseas suggest 1994 will be bett€r in Western Europe and Japan.

The recovery of the professional remodeler market for home improvement products is expected to accelerate on the strength of lower interest rates that will stimulate greater housing market activity and associated fix-up work. Average growth of 7Vo wrll put the value of the professional market at $45.8 billion in 1997 sales.

- Lower.mortgage rates and a larger stock of existing homes will raise existing home sales to new heights-. Home improvement and repair work, both before and-after sales, will provide a major impetus to the home improvement market through 1995.

As the home owning population ages, single-fanily construction will shift from starter homes to the more lucrative trade-up market. Some of this demand will manifest itself in increased spending for residential improvepg-n-ts. Althgqgh starts will be almost the same in the year 2OO2 as in 1994, real residential consrrucrion wrll & il%o higher.

Hardware and building supply stores, which suffered more than the overall retail sector during the recession, will continue to advance at a brisk 8.9Vo pacn. The gap between the home improvement products consumer martei and total retail sales is expected to widen with total retail sales projected to increase at 5.67o and home improvement products at8.6Vo rn 1994.

^ !_t""dy increases in real disposable income, averaging 2.2Vo over the next five years, will support sales growth of consumer market home improvement products, driven by continued gains in housing market activity and price inflauon.