by Fred Ashton, Economist, NEMA
Nonresidential fixed investment in structures, a key end market for lighting products, has struggled to gain traction over the past year and will likely detract from overall GDP growth again in 2020. Fixed investment in structures has declined in four of the previous five quarters as of Q3 2019, according to the U.S. Bureau of Economic Analysis, and has subtracted a cumulative 0.9 percentage points from overall GDP growth over that period. The outlook for the fourth quarter is grim, with the expected quarterly decline to measure 13.7 percent on an annualized basis.
A major cause of this weak performance is the fall in investment in mining and petroleum structures as oil prices have declined. Another likely source of lackluster investment has been the uncertainty surrounding trade. Various private industry surveys have pointed to the trade dispute between the United States and China as a main cause for holding back capital spending.
Some sectors of the economy have been hit harder than others. Private sector construction spending on educational facilities had the steepest decline, slumping 12.2 percent over the previous 12 months as of November 2019. Spending on commercial, transportation, and communication projects has also seen mid-single-digit annual declines.
However, beginning in August 2019, the residential housing market has shown signs of life. After contracting for six straight quarters, residential investment rebounded in the third quarter of 2019. Recent monthly reports from the Census Bureau showed that housing construction may have finally lifted from the doldrums. The December report showed that housing starts rose to a 13-year high, reaching an annual rate of 1.608 million units. After the Federal Reserve reversed course in 2019 with a series of three rate cuts, the 30-year fixed mortgage rate has followed suit, dropping to an average of 3.65 percent during the third week of January 2020, down from its near-term peak of 4.94 percent in November 2018. A multi-decade- high level of home builder optimism at the start of 2020 following the decline in rates signals that the momentum in the housing market is likely to continue.
The outlook for lighting equipment shipments is rocky, with growth expected to be less than 1 percent in 2020. It is likely to remain weak if nonresidential investment in structures continues to underperform the broader economy. However, the recent “phase one” trade deal between the U.S. and China may help alleviate high levels of uncertainty and put upward pressure on investment. ei