U.S. Building Materials to Benefit from Construction Growth in 2016

CHICAGO, Ill.—Continued growth in overall construction spending, albeit at a more moderate pace following a strong 2015, supports the stable outlook for the U.S. building and home products and services sector in 2016, according to Fitch Ratings’ 2016 outlook report.

Fitch projects construction spending will expand 8 percent next year, driven by continued strength in new home and commercial construction. Fitch also expects modest growth in home improvement and public construction spending. The recent passage of the new $305-billion multi-year highway bill should boost public construction spending, although the positive effect will likely be more evident during the latter half of 2016 and into 2017.

Additionally, Fitch expects revenue growth to average 5-7 percent for building materials companies in 2016. That, coupled with the sector’s projected improvement in margins, stronger free cash flow generation and lower debt levels could support some de-leveraging of companies’ balance sheets next year.

That said, “Looming labor constraints could temper growth in construction spending in 2016,” said Director Robert Rulla. “As the construction recovery continues to advance, labor shortfalls, project delays and higher labor costs are likely to persist and be more widespread.”

Fitch’s 2016 Outlook: U.S. Building and Home Products and Services report is available at www.fitchratings.com.