Amidst news of a lack of labor, shipping vessels waiting to dock and be unloaded, and enough general chaos in the construction industry to make anyone wonder if their project can possibly be finished before the world is vaccinated against COVID-19, a twinkle of hope has emerged for the U.S. construction market.
Don't misunderstand: Things are still rough as a gravel road after a hard rainy season, but there's a corner -- and it seems as if we may have turned it. It's just one of many, but the first step is turning a corner, or something like that. The point is, things are improving.
How do we know? Well, in part, we're guessing. That's how this works. We take the data we've got, given the environment we have to work in, and we make our best guesses. But that data isn't anything to be shy about, as it's actually pretty useful for forecasting. In this case, the data we've got is reasonably robust.
A look at the data that's pointing to better days
First, we have building permits. They were up 2.6% in July, even though residential starts were down 7%, to a three-month low of 1.53 million (annualized) structures. The drop in starts, however, was both predictable and anticipated, given the dramatic increase in the cost of the residential real estate market in general. New homes have reached a price that's now causing homebuyers to seriously consider if it's just better to wait for a more favorable market, which explains a lot of the reduction in starts.
Those building permits, though: Those are something to look more closely at. They've been attributed to an increase in applications for multifamily dwellings, such as your standard duplex, triplex, quadplex, or apartment building. There's huge demand for housing, even now, despite whatever fallout may come from the end of the pandemic eviction moratorium. Commercial real estate construction is alive and well in the U.S.
Second, we have Home Depot (NYSE: HD). Bless it for always having exactly what a homeowner needs, when they need it, no matter what sort of horrific catastrophe may have erupted in the walls of their WW2-era home (that may be an overly specific example, and does not at all pertain to anything in the author's personal life).
Despite posting weaker-than-expected results in Q2, which was honestly not wholly unexpected given how many DIYers were going back to work or had simply completed all the things on their personal to-do lists, same-store sales were up to $41.12 billion, from $38.05 billion, for the quarter ending Aug. 1, 2021. According to a prepared statement from CEO Craig Menear, this was the first time Home Depot had broken $40 billion in quarterly sales in its history.
Keep in mind this is despite ongoing irregularities in the supply chain caused by a combination of overseas manufacturers working around pandemic restrictions with a limited workforce and a massive backlog of ships waiting to be unloaded at ports across the country, also slowed by too few workers and truckers for transport goods, as well as too much viral load cramping everybody's style.
The Millionacres bottom line
Finally, the supply chain is starting to right itself. We were told repeatedly this year that it would happen, but I will admit I started to have my doubts. Now, considering the size of disruption we've experienced, this is not going to be an all-at-once kind of recovery, just like with anything else that's related to this pandemic. Overseas manufacturers, local shippers, and everybody in between will likely continue to go on and offline as they fight COVID-19 outbreaks within facilities and among worker populations.
But the good news is that things are getting better. We have the goods, at least at the moment -- they just need to be unloaded, put on trucks and trains and planes, and sent off to their destinations. Because building contractors have been working on amassing better stockpiles to help prevent slowdowns due to the irregular availability of materials that was so common earlier in this debacle we call a global health emergency, and because residential building demand has slowed somewhat, we should soon see commercial construction start to find a more normal rhythm again. That's exceptionally good news for investors, who need completed buildings in order to start getting some kind of return on their money.
We're getting there. It's going to be like birthing a piano, but it's an inch-by-inch, day-by-day sort of winning that's happening in the supply chain right now.