US & Global Economic Impact Analysis and Forecasts

Freedonia analysts and economists are sharing their insights on how major events are impacting different parts of the US and global economies.

Corporate Deal Making Still High as Major Conglomerates Announce Breakups & Realignments: Toshiba, Johnson & Johnson, General Electric, DuPont… & More

The business world experienced a wave of change this past few weeks as four conglomerates announced plan to break up into a number of smaller firms:

  • Toshiba released plans stating that it would divide into three firms: one focused on infrastructure and construction operations, a second concentrating on electronics, and a third devoted to memory storage solutions.
  • Johnson & Johnson announced that it would separate its consumer products division (maker of Band-Aid bandages and Tylenol pain reliever) from its medical device and prescription drug operations.
  • General Electric – perhaps one of the most famous of these conglomerates – stated it would complete a long chain of divestitures and separate its healthcare, aviation products, and power systems businesses.
  • DuPont, which has been reorganizing over the past two years since its separation from DowDuPont (other surviving units include Corteva and Dow Chemical), announced it plans to sell much of its Mobility & Materials segment, including the Engineering Resins and Performance Resins lines and its stake in the DuPont Teijin Films joint venture. At the same time, it reported it would buy Rogers Corporation, a key suppliers of high performance materials in the electronics market.

The reasons for these breakups vary. For Johnson & Johnson, the decision was based on the fact that the divisions had evolved into different focuses and customer bases (consumers in the one, healthcare professionals in the other) and a separation was a logical choice. DuPont is also reorganizing toward a high growth portfolio. In DuPont’s case, it’s leaning into next generation solutions in electronics, water, protection, industrial technologies, and automotive. For GE and Toshiba, the moves were done after years of concern that by keeping their varied units together, shareholders were not receiving as much of a return on their investments as they should have been; thus, these moves were welcomed by the investor community (if not by the more tradition-minded).

Will the market see more of these moves? It is a distinct possibility; companies tend to cycle between eras of building up portfolios and eras of contracting to a reshaped view of core competencies. Additionally, as some investors are looking for more exotic opportunities – Bitcoin, crypto, SPACs, shorting – some companies will decide that it might be worthwhile to create their own buzz and separate into two or more firms, thus unlocking shareholder value.

Others, though, may continue to see value in diversification – especially as the US and global economy tries to navigate a challenging world of COVID, inflation, and supply chain difficulties.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research. Freedonia Custom Research is also available for questions requiring tailored market intelligence.

  Industry Studies      Services    

Rising Prices Continue to Afflict Construction Market

Readers of this site will note that we regularly discuss lumber prices – namely, how their surge during the COVID-19 pandemic has affected many facets of the US construction industry, from helping to drive up new home prices to potentially altering or delaying home improvement projects. Now, a recent headline indicates that the problem is not just limited to lumber alone.

Prices of all construction materials – lumber, steel, drywall, fasteners, etc. – rose 1.5% in October, the highest such increase since June. Furthermore, in a year-over-year comparison, construction materials prices were more than 20% higher in October of 2021 than they were a year ago. Perhaps more worrisome for construction professionals, prices are expected to continue to climb throughout the rest of the year and into 2022.

While in many respects the construction market has weathered these prices – with new housing remaining strong and homeowner interest in home improvement projects undimmed – there is concern about the effect of high prices among contractors and other industry professionals. Indeed, with inflation affecting many other segments of the US economy – such as high gas prices and more costly groceries – some are wondering if further increases in prices will cause consumers to cancel home improvement projects. It can be difficult to sell homeowners on the value of a $25,000 kitchen renovation, for instance, if they are concerned about their ability to repay this debt. Freedonia experts will continue to monitor the price of construction materials – as well as other products – as the US economy contends with supply chain issues, such as the availability of raw materials and bottlenecks in production and transportation.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research, particularly our series studies in the Construction and Building Products catalog. Freedonia Custom Research is also available for questions requiring tailored market intelligence.


Latest Retail Sales Report Shows Uptick for Building Materials Distributors

The recent release of the October Retails Sales by the US Census Bureau showed that sales by retailers of building materials and garden equipment and supplies rose in October 2021 – a rebound after a decline in September. Compared to this time last year, retail sales in the category were up more than 13%.

A number of factors can explain this sales increase, key among them:

  • continuing strength in new home construction and homeowner interest in home improvement projects
  • rising lumber prices (after a period of declines) and price hikes for a number of other key building materials, such as fasteners and drywall
  • consumer interest in a last round of outdoor projects – such as preparing gardens and yards for the winter – that would necessitate the purchase of such items as leaf blowers and lawn and garden consumables
  • strong sales of Halloween-related decorations – after trick-or-treating was canceled last year due to the COVID-19 pandemic, many consumers opted to create more extensive outdoor displays to celebrate the holiday

The November retail sales report – which includes Black Friday sales and the beginnings of Christmas shopping – will reveal whether or not building materials and garden equipment suppliers and retailers will be able to continue to post strong sales, or if concerns about inflation will cause shoppers to cut back on their holiday purchases in favor of basic household staples. TFG analysts will continue to monitor retail sales – as well as numerous other indicators – to gauge their effects on the US economy going forward.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research, particularly in the Construction and Building Products. Freedonia Custom Research is also available for questions requiring tailored market intelligence.


Inflation… Shrinkflation… Skimpflation?

The value of goods and services aren’t simply reflected in the price per unit, packaged as sold. We’re all witnessing this trend.

However, price per package can be deceptive, if the size of the package changes. Shrinkflation is a phrase that is being used more to describe situations where the price of the product stays the same, but the size of the package gets smaller. In such cases, we are paying the same for a single box of cereal, for instance, but there is less cereal in that box. So on a price per ounce basis, we are paying more.

However, what if what we’re getting for the price is a lower quality or somehow less feature-rich? This trend, which can be less obvious, is being discussed as “skimpflation.” For instance, many hotels have reduced housekeeping services from every day to just in between guests and as requested, and many others have eliminated shuttle services or what was once a free breakfast. While it is most often seen in the service sector, other examples of skimpflation could be electronics with fewer ports, packaged food or beverage products switching from cleaner labels to the use of more preservatives, or clothing made with thinner or otherwise lower quality fabrics.

Some of the reduction in quality in the service industry is due to insufficient staffing as businesses still struggle to find enough staff to provide the level of service they had provided in the pre-pandemic era. In other cases it’s an attempt to keep costs low. For instance, some businesses discover that the service that is cut or the feature that is reduced isn’t missed all that much by their customers so they keep it in place as a cost cutting measure.

However, it can be hard for government statistics to account for the changes in quality that lead to consumers getting less for their money. While the US Federal Reserve and the US Treasury Department still see this inflationary period as transitory at this time, it is harder to determine if quality degradation or package size reductions will be similarly short term. Package size reductions tend to be stickier as it is often more subtle than changes on the price tag itself. Changes in quality, if it lasts long enough, might be something that consumers get used to as a new normal. That is, until the competitive environment forces change once again.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research. Freedonia Custom Research is also available for questions requiring tailored market intelligence.

  Industry Studies      Packaging    

Latest Asphalt Roofing Production Report Shows Continuing Effect of COVID-19 Pandemic

The recent Quarterly Production Report of the Asphalt Roofing Manufacturers Association contained both good and bad news for those wondering if the US construction industry was escaping the challenges of the COVID-19 pandemic.

The good news: shipments of asphalt shingles and polymer-modified bituminous membranes rose at a double-digit pace in the third quarter of 2021, boosted by continuing high levels of new housing activity and strong homeowner interest in completing home improvement projects, such as replacing older or worn roofs. This strong demand is good news for the construction industry and the US economy as a whole, as a tight housing market and consumer willingness to spend on fixing and renovating homes means that many have the means (and desire) to buy or remodel their homes – and will continue to do so going forward.

The bad news: compared to last year, shipments of asphalt shingles and bituminous membranes declined in the third quarter of 2021, a contrast from the increases seen in the second quarter. Manufacturers attributed this decline in production due to supply chain issues in obtaining key raw materials, such as asphalt, fiberglass matting (used as the base for many shingles and membranes), and ceramic and mineral granules used to coat these products. Furthermore, the cost of these products has risen – and will continue to do so – forcing manufacturers to pass on these costs to consumers. At a time when so many other prices are rising, continuing price hikes may cause some homeowners to delay reroofing projects or cause potential home buyers to put off home purchases until they become more affordable.

Freedonia experts will continue to monitor the roofing industry, as well the US construction sector as a whole, as it contends with supply chain issues, such as the availability of raw materials and bottlenecks in production and transportation.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research, particularly our series of Roofing studies in the Construction and Building Products catalog. Freedonia Custom Research is also available for questions requiring tailored market intelligence.