Slump in windows and siding will soon hit bottom.

There is nothing surprising about the recent downtrend in market demand for vinyl windows and siding. For well over a year now, residential construction activity in the U.S. has been in a free-fall. The one bright spot is that the current downtrend will hit bottom in the third or fourth quarter, and our forecast calls for moderate expansion in residential construction activity in 2008.

The number of new housing units started in the U.S. is down over 25% for the year to date. For 2006 as a whole, the total was down 13%. The number of permits issued for new houses, a leading indicator of future construction activity, is also down over 25% so far in 2007. In dollar terms, residential construction spending has dropped 16% this year compared with the same period a year ago. The decline in spending is not quite as bad as that in housing starts because it includes spending for additions and alterations to existing structures as well as new starts. But the overall message is the same: Demand for construction materials such as siding and windows will decline in 2007.

For the year-to-date, our Window/Door Business Index is down 25%, the same as for new housing starts. This follows a moderate decline of 5% to 6% in 2006. Demand for vinyl window and door profiles has enjoyed solid growth during the past 10 years, and even with a decline this year, output of windows and doors will still be high by historical standards. We expect the downtrend to level off in the second half of this year, and the overall decrease for 2007 will be in the range of 10%. Window demand is buoyed by the high cost of heating fuels, and this market will return to the long-term trend of solid growth in 2008.

Siding fares worse

The outlook is less optimistic for our Siding Business Index. Like most other indicators of construction activity, this siding market indicator is down 25% so far in 2007. But unlike the windows data, siding output has not grown much during the past 10 years. And also unlike the trends in both housing and windows, this chart did not hit a major cyclical peak in 2006 before it started to fall.

Competition from several other materials, such as concrete, wood, and metal, has restricted the growth of vinyl siding. And while vinyl siding may cut down on maintenance costs, it is not a product that is seen as having a significant impact on energy savings. Thus, this market is not likely to benefit from high energy prices. So after a drop of 10% in 2006, our forecast for the vinyl siding market is for a decrease of at least 15% in 2007. But here too, the downtrend will bottom out later this year, and we predict modest growth for 2008.

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By Bill Wood

Plastics Market Economist

Bill Wood, an independent economist specializing in the plastics industry, heads up Mountaintop Economics & Research, Inc. in Greenfield, Mass. He can be contacted by e-mail at [e-mail]. His monthly Injection Molding and Extrusion Business Indexes are available at www.ptonline.com.