Building Products - Retail Outlook: Economic Growth Lends Support

The U.S. economy is picking up the pace (4.1% growth in second-quarter 2018) with strong consumer spending driven by steady rise in income, strengthening labor market, as well as increasing business investments and government spending. Positive trends in the economy are driving many U.S. industries, including the housing market that has witnessed increased housing demand lately.

Notably, the spring buying season witnessed significant demand for buying a home across most parts of the United States due to the steady economy and improved employment levels. However, home sales remained stable due to budget constraints as home prices and mortgage rates continued to surge. Further, rising interest rates, trade-war anxieties (due to tariffs on aluminum and steel), labor shortages, apprehension of two more hikes in 2018 and limited land availability are some concerns looming upon the housing sector.

Albeit, the prospects for the building products industry, which produces and sells goods used in building homes and offices, are bright. Dealing in lumber, insulation materials, drywall, plumbing fixtures, flooring, and furniture, players in this industry are poised to gain from a shift to digitalization as the industry continues to evolve.

Further, higher home prices and rising interest rates are are acting as deterrents to home purchases, leading consumers to focus on undertaking home improvement and remodeling projects. This is likely to benefit the Building Products – Retail industry due to increased demand for lumber and other building materials. This is where home improvement retailers like Home Depot (HD) and Lowe’s Companies (LOW) stand to gain.

Industry Outperforms Shareholder Returns

Relentless efforts to enrich customers’ experiences, solid focus on omni-channel capabilities and innovations, robust services to Pro-customers as well as optimizing costs and boosting productivity are driving solid performance of a sizable number of stocks in the space.

The Zacks Building Products – Retail Industry within the broader Zacks Retail-Wholesale Sector has outperformed both the S&P 500 and its own sector over the past year.

While the stocks in this industry have collectively gained 27.8%, the Zacks S&P 500 Composite and Zacks Retail-Wholesale Sector have rallied 26.1% and 16.4%, respectively.

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Disclosure: Zacks.com contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any ...

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