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As most people already know, 2007 saw a slowdown in the U.S. economy, and the housing market was particularly hard hit. New housing construction peaked in February 2006 and has been declining ever since. As of October 2007, it had reverted to the lowest levels since 2003, about $503.7 billion. Looking at historical residential construction numbers, the amount of money spent monthly on residential construction between February 1996 and February 2006 increased by more than 268 percent, from $259.3 billion to $696 billion, and typically that kind of growth just isn't sustainable, especially in light of the fact that the population has been relatively stable. Basically, we were due for a correction.

Those paying attention to the news may have heard the word recession used as various economic experts offer their 2008 forecasts, but what exactly is a recession? The official definition is two straight quarters of economic decline — not just a slowing down, but actual negative growth. Most seem to agree we are, perhaps narrowly, going to avoid such an event. Economists look at a number of indicators to predict the economic outlook, such as gross domestic product (GDP), unemployment, inflation, consumer spending and construction.

GDP, the value of all goods and services in a year, slowed in 2007, and was expected to finish at a 2 percent growth level. The White House revised its 2008 economic forecast on Nov. 29, 2007, predicting an overall GDP growth rate of 2.7 percent. The Federal Reserve policy-makers' prediction was a bit lower, at 1.8 to 2.5 percent.

For well over a year unemployment has remained low — less than 5 percent — and according to the White House's forecast it will remain so at 4.9 percent in 2008, a bit higher than the 4.7 it averaged in 2007, according to the U.S. Bureau of Labor Statistics.

The continued increases in the price of food and energy have negatively affected the consumer price index (CPI), a measure of inflation. The CPI was expected to rise to 3.9 percent by the close of 2007. However, according to the White House, inflation should ease next year dropping to an estimated rate of 2.1 percent.

Consumer spending was sluggish through the last half of 2007 and appears to be set to continue that way. A report from the Home Improvement Research Institute (HIRI) released in late 2007 had the level of consumer spending dropping from 3.1 percent in 2006 to 2.8 percent in 2007 and ending up at a modest 2.6 percent in 2008.

CONSTRUCTION

Digging down deeper toward what is most likely to affect surfacing companies is the construction outlook for 2008.

In the commercial construction market, the numbers continue to look good. In November 2007, the value for private nonresidential construction put in place hit an all time high of more than $375.7 billion for a single month, according to the U.S. Census Bureau. This represents an increase of almost $150 billion, or 61 percent, in just five years, up from $228.7 billion in November 2002. A firm commercial construction segment may act as a backbone for those in the surfacing industry that have gotten involved in commercial work.

The residential segment, however, is not so rosy. According to Freedonia's "World Housing" report, issued in December, global demand will slow to 2.1 percent annually through 2011. However, housing growth in North America is expected to be only half of the world's rate, coming in at just 1.1 percent through 2011. And much of the North American growth will be found south of the border, with Mexico expected to see a housing increase of nearly 5 percent per year.

"We have been hit with a pretty significant slide in the housing market," said White House Council of Economic Advisers Chairman Edward Lazear, who also said the slump will continue through at least the first half of the new year.

"The housing market declined significantly … and housing will get worse before it gets better," agreed the HIRI report. "Housing starts are expected to plunge 23 percent in 2007 and an additional 5.5 percent in 2008. Existing home sales will fall 10 percent in both years. Housing is not expected to improve until mid-2008."