In its March update on the economy and the home-improvement sector, the Home Improvement Research Institute predicts a bright future for both areas, as consumers turn to industry professionals following an initial surge in DIY projects.

By Robert Isler

A perfect storm of events and conditions points to strong growth in a number of key areas, leading to a robust 2021 outlook in the home improvement sector and overall economy.

Scott Hazelton, managing director of IHS Markit, a global leader in information and analytics across industries, was the guest speaker at a recent Home Improvement Research Institute (HIRI) webinar. Leading with overall and sector-specific expectations for the next several years, he moved from indicator to indicator to build his company’s case for what he believes will be a strong economy for this year and beyond. He noted that real GDP grew by 4% in the last quarter of 2020. Initially, that was the projected figure for 2021 as well, but, based on the release of encouraging consumer credit/debit card data, it was revised upward to 5.7% for the year. Some even expect it to reach as high as 6%. This assumption is based on the stimulus relief rollout going smoothly, the Fed maintaining its policy of keeping rates near 0%, and COVID-19 vaccinations resulting in herd immunity by fall. He added that the government stimulus package supported disposable income in 2020, while the new package will keep it going in 2021.

Following the expected banner year for 2021, GDP growth is forecast to drop to 4.1% in 2022 and 2.3% in 2023. Existing home sales and U.S. residential construction are also expected to peak in 2021, then ease back modestly.

“Home-improvement spending is expected to grow by a healthy 10% this year, following gains of nearly 14% in 2020.”

The three stimulus bills have and will continue to profoundly affect the economy. While the first one was mostly allocated to boost savings as consumers were reluctant to spend amid all the uncertainty, the second one — the $600 in December of last year — was largely spent, which stimulated the economy. The third offering, the largest of all at $1,400 and currently being rolled out, is expected to result in a spending surge.

In his final comments related to the economy, Hazelton spoke of what could go right and what could go wrong with his forecasts. The optimistic scenario is that the business restrictions continue to ease, the vaccinations lead to a sharp drop in new COVID cases, and the additional stimulus leads to a faster recovery.

The pessimistic outlook is that the recovery stumbles as consumers remain cautious, and vaccinations take longer than expected to achieve herd immunity. He assigned a 25% probability for each of these scenarios, with the middle ground probability put at 50%. He added that in the positive model, if GDP were to have growth above 6%, it could lead to inflation. He also noted that even if the negative scenario were to take hold, he believed it would not result in a significant recession. More likely, it would lead to the economy stabilizing at low-level growth for the year.

Hazelton then turned to the housing sector, saying that of its three components — new single-family homes, new multifamily homes and home improvement — growth was driven by home improvement. Overall growth for 2020, which is close to being the final number, showed a gain of 13.8%, making it by far the best year. For the current year, the industry should grow another 9.9%, with 2022 projected to add 5.7%, which, historically, is still strong.

The home improvement sector can be split into consumer vs. professional-oriented projects. The consumer portion grew by a whopping 15.3% last year. The expectation is for gains to tail off to 7.5% this year and 6% in 2022. The eye-opening 2020 numbers were due to a huge surge in smaller, less complicated projects, as consumers, trapped at home and not wanting to bring in contractors, turned to DIY jobs. That scenario has run its course and is now changing, as consumers are ready to begin larger, more complex jobs that require the services of a professional. As a result, revenues for industry professionals, which grew by a very respectable 10% last year, are expected to surge by an additional 15.5% in 2021, before dropping back to 5.1% in 2022.