Executives say worst is over for U.S. housing

By Nick Zieminski

NEW YORK (Reuters) - Most manufacturers exposed to the U.S. home building market are reporting early signs of a bottom in the hard-hit sector, but they disagree about the outlook for nonresidential construction.

The building of office towers, schools, factories and other spaces has until recently helped soften the blow from housing for many companies, but the stability of that support is in question, executives said at the Reuters Manufacturing Summit in New York this week.

For manufacturers -- who sell products ranging from security systems and countertops to earth-moving machines -- it means one less avenue of growth at a time when the U.S. economy may be cooling a bit after a sustained period of expansion.

The chief executive of diversified manufacturer Illinois Tool Works Inc.'s (ITW.N: Quote, Profile, Research, Stock Buzz), David Speer, said he was reading mixed signals about construction demand.

Demand for office space was soft in some areas because of high vacancy rates, and spending on health care facilities was expected to contract, Speer said. Strong parts of the sector, like spending on educational facilities, will not be enough to offset a weak residential market.

On the positive side, housing is "awfully close" to a bottom, Speer added.

John Rice, who heads General Electric Co.'s (GE.N: Quote, Profile, Research, Stock Buzz) huge infrastructure division, said he expected commercial construction in the United States to be "moderate to soft for a while."

U.S. construction spending fell 0.8 percent in January, as private residential building fell for the 10th straight month. Nonresidential construction spending was flat, the Commerce Department said on Thursday.

PHENOMENAL TAILWIND

German engineering group Siemens AG (SIEGn.DE: Quote, Profile, Research, Stock Buzz) has seen a "phenomenal tailwind" from the nonresidential construction market, said Dennis Sadlowski, chief operating officer of Siemens' U.S. energy and automation business.

"Our indicators suggest at least 6 to 9 months of very, very good market in some of the commercial construction areas," Sadlowski said, adding that part of the tailwind came from companies making capital investments to expand manufacturing capacity.

But it may not last.

"Beyond nine months, anything is subject to a correction," Sadlowski said. "We don't see interest rates moving substantially, but there could be a lot of other things (which) would dictate a correction even in the commercial construction market."

Housing, meanwhile, could decline for up to another year, Sadlowski said.

"It's likely (there will be) some continued slide from where we are today," he said.  Continued...