What's Driving The Builder Supply Segment?

| About: Home Depot, (HD)
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The latest retail trade data showed building material and garden equipment and supplies dealers' sales surged 3.0% in March. The shares of Home Depot (NYSE:HD), Lowe's (NYSE:LOW) and many building materials companies were higher on the news Monday. However, the reasons for the burst in the segment are varied, reflecting the dynamic and complex environment. Thus, investment in the sector should likewise be choosy.

Building supply segment sales were also up 14.1% on the year-to-year comparison, which certainly reflects the latest surge in multi-family construction. While a renter nation is not ideal for America, it's perhaps just as well for many building supply firms like MasTec (NYSE:MTZ), Masco (NYSE:MAS) and USG Corp. (NYSE:USG).

We look to the early calendar falling of Easter as a driver for the reported strength within many of the retail segments in March. This is also possible for this segment, especially for the garden component, as sales of flowers and related items spike into the holiday. This may support the first quarter results of companies like 1-800-Flowers.com (NASDAQ:FLWS) and the like. FLWS was up 1% Monday, probably due to the positive consumer data and maybe on the early Easter hope.

The warmer weather this winter has perhaps speeded spending that regularly occurs later in the spring. Spring cleaning often inspires do-it-yourself projects, and so may have driven earlier traffic to the likes of Home Depot. This might partially explain why Builders FirstSource (NASDAQ:BLDR) lagged the early rally enjoyed by HD and LOW.

The weather may also be driving earlier replacement construction activity driven by tornado and other storm damage that strikes vast regions of the central part of the United States each spring. Furniture and home furnishing stores also noted a relatively strong 1.1% sales increase in March. These types of storms drive replacement of furniture as well as homes.

Any seasonal adjustments that may be applied to economic data will face a new challenge due to shifting seasonal patterns, at least this year. Thus, if March acted like April, it would mark a significant and likely unaccounted for change against February.

As you can see, taking measure of the data and the industry today uncovers a dynamic and complex environment that may not be as simply defined as most reporters would like. The 3% gain has been seen as a reflector of consumer strength and even construction activity, despite the same day's reported decline in the housing market Index. Though, if dynamic drivers such as those discussed above played a significant role in the month's gains, they could prove absent in the months ahead. Yet, some of the factors in play, like the surge in multi-family construction, serve a longer time frame.

Once again, it's my pleasure to dissect the data for you, so you might better understand its complexities. Those complexities play a part in what drive the related equities over longer periods than the day of data reporting.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.