A brand-new index, grid, and survey involving pro contractors all point to more sluggish business for building material suppliers over the next 18 months, the credit management firm BlueTarp revealed today.
Drawing in part from the payment trends of more than 2,000 suppliers that have accounts with more than 120,000 pro customers, BlueTarp said its new building supply index stood at 117.49 as of the second quarter. That's 5.2% below where the index finished last year's second quarter.
"2016 is going to be a good year, but 2017 and beyond are not going to be as attractive at this time," BlueTarp President and CEO Scott Simpson, told ProSales in an interview. "I’m watching the macro drivers trends, and what the relation is between average spend and delinquency. If average spend declines and delinquency rises, that’s a sign of trouble."
The index, which is benchmarked to conditions as of the April-to-July 2012 quarter, is based on a weighted combination of BlueTarp's proprietary spending and delinquency data plus federal data on building permits and construction spending and the Conference Board's index of consumer confidence.
The just-created index contains data going back as far as 2008. It resembles a series of ever-rising waves because construction activity is so seasonal. As a result, say officials at Portland, Maine-based BlueTarp, it makes the most sense to focus on year-over-year comparisons.
Evidence for a potential slowdown also came from two other sources BlueTarp released. One was a survey of contractors it conducts quarterly in which the most recent poll found only 23.8% of respondents predicted 2017 will be somewhat improved or significantly stronger than 2016. In contrast, 45.3% said the same about this year vs. 2015. At the same time, 24.7% predicted 2017 would be "more sluggish" than this year, compared with just 10.3% who said 2016 was turning out to be slower than last. Here are those results:
"Comments suggest uncertainty related to the U.S. presidential election and feared increases in material costs are driving the skeptical outlook," BlueTarp said.
The company's other report consists of an X-Y grid, again based on BlueTarp data, in which the delinquency rate was on the horizontal axis and spending was on the vertical. It starts with 2008 in the "Cautious" quadrant--a time of high spending but also disturbingly high delinquencies. Then 2009 moved into the "Recession" quadrant because of low spending and high delinquency.
The next three years saw us in the "Recovery" phase, BlueTarp says, because delinquencies fell dramatically but spending still was below average. In 2013 and 2014 the LBM customers moved into the "Healthy" quadrant, because spending grew markedly while delinquencies were still on the low side.
2015 saw a return to the "Cautious" quadrant, with high spending but just above average delinquencies. And for the second quarter of 2016, we remain in the "Cautious" quadrant. But while delinquencies are about the same, the rate of spending has fallen, BlueTarp says.
BlueTarp provides credit management services, including collections, the setting of credit limits, and payment processing