1. The Outlook for the U.S. Economy and Home Improvement Spending James Gillula Managing Director, Consulting Services IHS Global Insight April 2014

2. Copyright © 2009 IHS Global Insight. All Rights Reserved. 2 Overview The U.S. economic outlook: Components of GDP growth Determinants of consumer spending Interest rates and the housing market Outlook for home improvement product sales: Changing balance of factors driving the market

3. Copyright © 2009 IHS Global Insight. All Rights Reserved. 3 Inventory swing and bad weather slow Q1 this year, but growth will accelerate. (Real GDP, annualized growth rate)

4. Copyright © 2009 IHS Global Insight. All Rights Reserved. 4 2014 Growth: Stronger consumption and investment, less drag from declining government spending.

5. Copyright © 2009 IHS Global Insight. All Rights Reserved. 5 Employment growth will begin to accelerate later this year. Unemployment rate falls below 6.5% by mid-year.

6. Copyright © 2009 IHS Global Insight. All Rights Reserved. 6 Growth of real income will be stronger in 2014. Tax increases held down disposable income growth in 2013.

7. Copyright © 2009 IHS Global Insight. All Rights Reserved. While stock market wealth has surged, home values are only now reaching the previous peak. 7 “Wealth effect” on spending from stock markets gains is smaller.

8. Copyright © 2009 IHS Global Insight. All Rights Reserved. 8 The pace of consumer spending growth will build over the next two years. Annual Percent Change 2013: 2.0% 2014: 2.5% 2015: 3.1%

9. Copyright © 2009 IHS Global Insight. All Rights Reserved. Fed will hold short term rates near 0% until mid- 2015, but long-term rates continue to edge up. 9

10. Copyright © 2009 IHS Global Insight. All Rights Reserved. 10 Existing home sales have lagged since October, but we expect a turnaround. Annual Percent Change 2013: 8.9% 2014: 1.8% 2015: 11.7%

11. Copyright © 2009 IHS Global Insight. All Rights Reserved. 11 Housing starts will rise to meet demand. Annual Percent Change 2013: 19% 2014: 18% 2015: 34%

12. Copyright © 2009 IHS Global Insight. All Rights Reserved. Multi-family share of housing starts is at a 27-year high. 12

13. Copyright © 2009 IHS Global Insight. All Rights Reserved. 13 Sales of Building Material Dealers slowed after a mid-2013 surge.

14. Copyright © 2009 IHS Global Insight. All Rights Reserved. 14 Volatile data on homeowner spending on residential improvements show 4% growth on an annual basis.

15. Copyright © 2009 IHS Global Insight. All Rights Reserved. 15 Home Improvement Products sales growth will accelerate.

16. Copyright © 2009 IHS Global Insight. All Rights Reserved. 16 Home Improvement Products Market Forecast 201320142015 Sales in Nominal Dollars Total4.2%6.5%7.0% Consumer Market4.5%6.4%7.4% Professional Market3.4%6.8%6.0% Sales in Constant Prices Total3.0%5.0%5.3% Consumer Market3.5%5.3%5.7% Professional Market1.4%4.3%3.0%

17. Copyright © 2009 IHS Global Insight. All Rights Reserved. 17 Price increases for home improvement products will remain modest.

18. Copyright © 2009 IHS Global Insight. All Rights Reserved. 18 Thank You James Gillula, PhD Managing Director, Consulting Services IHS Global Insight (202) 481-9217 james.gillula@ihs.comames.gillula@ihs.com