2011 still scares contractors

As is our custom each January, we ask prominent players in the industry what kind of business conditions they expect to see in the coming year. Manufacturers are cautiously optimistic. They can be. Many of them are in multiple lines of work across the country and internationally, so they benefit from that diversity. Contractors, however, are not so sure.

As is our custom each January, we ask prominent players in the industry what kind of business conditions they expect to see in the coming year. Manufacturers are cautiously optimistic. They can be. Many of them are in multiple lines of work across the country and internationally, so they benefit from that diversity. Contractors, however, are not so sure.

Contractors who are members of the Nexstar Network are probably the most optimistic, as they should be. They have access to the best business management advice around and most are in multiple types of work — plumbing, hydronics, HVAC, electrical, appliances, pipe relining and the like.

"We have seen with certainty our members' businesses turn for the better in 2010," said Nexstar President/CEO Greg Niemi. "And, we do expect this to continue through 2011. The database we maintain on our members has shown month over month and year over year improvement each and every month since March. Furthermore, most economic indicators are on the plus side, as best evidenced by U.S. Leading Economic Indicators."

The only thing that troubles us here is that the rate of revenue growth tracked by Nexstar is decreasing from more than 20% in July to about 6% in October, the last month for which data is available.

"We project that 2011 will have the same picture as 2010, until the residential market gets heated up, and that could be a few years," said Steve Irwin, Farmer & Irwin, West Palm Beach, Fla. "The reality is that we have overbuilt South Florida. There are no new schools being built, very little retail building, no office buildings and only a few commercial or manufacturing buildings on the horizon. There are some medical facilities and health care facilities planned, such as a new 80-bed hospital in Port St. Lucie, some smaller bio-science lab projects and some institutional projects for higher education. The retrofit, remodeling and maintenance type projects, along with heavy commercial service work, are what will sustain us until some semblance of normalcy returns to new construction. We, along with our competitors, are down 60% from the volumes of 2006."

Mark Giebelhaus, president, Marlin Mechanical, Phoenix, commented, "The market is pretty brutal here still. We currently have a backlog of about 30% of what our average annual revenue is. Going forward I don't visualize it changing much here for at least another year. It is the same story it has been for the last two years. We have a decent amount of projects to bid, but they continually are put on hold pending financing. We were awarded a student housing project at one of the universities here in August 2009. That project has yet to start and they don’t know when or if it will. Home values are still falling and there is a tremendous amount of homes on the market."

Dave Kruse, L.J. Kruse, Berkeley, Calif., said, "It really can't get much worse. There remain a few active pockets of growth — large health care, federally funded projects like University of California Labs and Stanford Linear Accelerator — but overall things are dismal. 2011 should begin to show some signs of life, but realistically I don't see a real recovery until: a) the banks start loaning money b) a developer can build a building for less that he can buy it, and c) unemployment heads downward and people start hiring again. In my opinion this won't occur in 2011 and may not in 2012. Service remains strong as capital projects are put off and mechanical and plumbing systems continue to deteriorate. We are seeing more and more service projects in the $100,000 range as owners struggle to keep their plants and buildings running. Overall we are not optimistic about 2011, but we are very committed to do the very best job we can with our good customers and clients."

Hang on, fellas. Everything is cyclical.

As you may have noticed from our extensive Letters & Emails section, Michael Gray's letter in our November edition ("Why I won't renew my magazine subscription,") really stirred the pot. We have plenty more letters that we didn't have room to run this month, and more are coming in. We'll continue this conversation in our February issue.