Home Depot, Lowe's, Other Home Centers Go from Bad to Worse

(MoneyWatch)  Home-center retailers are going to have to work hard if they're to dig their way out of a recession that has undermined construction in the U.S.

Of course, companies such as Home Depot and Lowe's are going to suffer in a recession, but this one is particularly painful. In a conference call today on home building and building products, S&P analyst Thomas Nadramia shared a painful observation. Usually, when the economy knocks consumers out of the new-housing market, they begin spending money to fix up their current homes -- which in turn gooses sales at home-center retailers.

That's not happening in this recession. The credit crunch has dried up the money that companies and consumers need to start construction projects. Even if it was available, Nadramia said, consumer confidence is so low that it's unlikely do-it-yourselfers might start driving sales.

Of course, the housing collapse has had a ripple effect across an economy in which consumers formerly tapped home equity to purchase everything from furniture to cars. But home-center retailers are looking at a second act and deepening problem in their own little corner of the recession.

Frank Blake, Home Depot chairman and CEO, noted in a November conference call that when the housing bubble initially burst a few months ago, it was initially isolated in a few markets, particularly California, Nevada and Florida. At the time, though, underlying economic growth and employment were strong in those areas. That's no longer so. What's worse, Blake pointed out, the troubles afflicting the country as a whole are more fundamental, so strategies Home Depot devised to cope with the original bubble bust won't work now. So it's back to the drawing board.

The only relief in sight for retailers like Home Depot and Lowe's actually comes from the severity of the recession. Ironically, one of the few bright spots in the S&P call was the observation that housing starts, down 70 percent year over year, have plunged so low that the backlog of empty homes may clear a little faster than anticipated. Or, at least, a little earlier in 2010.