2022 was an interesting year to be in the plumbing and mechanical trades. Most contractors had a successful year, with ABC reporting high backlogs and high optimism among its members, even in the face of economic headwinds. On the one hand, most of the supply chain problems from 2020-2021 seem to have worked themselves out; on the other, inflation is beginning to eat away at everyone’s profits. And finding skilled labor remains one of the most difficult parts of running a business in the industry.
Here's a short list of the best and worst of 2022. As for what 2023 might bring, be sure to check your January issue of CONTRACTOR for our Industry Forecast and big AHR Expo Preview.
The (semi-official) end of the pandemic. In September, President Biden declared the end of the Coronavirus Pandemic in an interview with 60 Minutes. “The pandemic is over,” the President said, while adding, “we still have a problem with COVID. We’re still doing a lot of work on it.” While some medical experts—including retiring director of the National Institute of Allergy and Infectious Diseases at the National Institutes of Health, Dr. Anthony Fauci—assert that we are still in the midst of a pandemic, all states have lifted their masking requirements. The federal government's nationwide mask order for public transit, commercial flights and transportation hubs was struck down by a federal judge April 18.
Contractor confidence. ABC’s Construction Confidence Index reading for sales increased in October, while the readings for profit margins and staffing fell. All three readings remain above the threshold of 50, indicating expectations of growth over the next six months. “Contractor survey data indicate that while backlog declined in October, it remains reasonably healthy,” said ABC Chief Economist Anirban Basu. “Moreover, the average contractor continues to expect sales, staffing and margins to grow over the next six months. Time will tell whether this lingering optimism is justified.”
The coming tsunami of infrastructure money. Back in November of 2021, Congress passed, and the White House signed the Infrastructure Investment and Jobs Act, which included $55 billion to expand access to clean water, with a push to remove and replace all the lead service lines in the nation. In August of this year Congress passed and the White House Signed the Inflation Reduction Act. That piece of legislation had several aims, including reducing the deficit, increasing the affordability of prescription drugs, and combating climate change. Those climate change provisions include $9 billion in home energy rebate programs for energy efficient technologies, including heat pumps and other high efficiency water heating technologies.
The push to electrification. While it’s true that organizations such as the PHCC are pushing back against natural gas bans (see below) the amount of federal money pushing electrification (see above) makes the installation of heat pumps a possible big money-maker for contractors doing replacement or new construction work. The combination of more expensive equipment and more complex installation means higher profits for those companies able to perform the work. While some electrical experience is usually needed, many manufacturers are creating heat pumps that have their HVAC/R components isolated, so the installer doesn’t need to worry about refrigerants or condensers.
Inflation. The annual inflation rate for the United States is 7.7% for the 12 months ended October 2022, after rising 8.2% previously, according to US Labor Department data published Nov. 10. That is a better-than-expected number following June's 9.1% inflation rate, but well shy of the Fed’s 2% target. Expect the Fed to continue to raise the core interest rate until inflation is well under control—although perhaps not as dramatically as 75 basis points (which it has done four times this year).
Natural gas bans. In April, New York Governor Kathy Hochul released a budget including a plan to make New York the first state to ban natural gas and other fossil fuels in new construction. The push towards electrification was a component of the federal Inflation Reduction Act signed into law in August (see above). Under a proposal unanimously approved from the California Air Resources Board (CARB) in September, the state of California voted to ban the sale of all natural gas-fired space heaters and water-heating appliances by 2030. The bans are part of a drive to curb greenhouse gas emissions, yet many industry advocates (including the PHCC’s Vice President of Regulatory Affairs Chuck White) believe that the bans will limit consumer choices, and may not drive the desired outcomes. “Heat pumps are everyone’s answer, and yes, heat pumps will work,” said White in CONTRACTOR’s November Forum, “but they are not inexpensive and not trouble-free. At the end of the day, huge amounts of additional electricity will be needed.”
Decline in new building starts. According to data from the Census Bureau, privately‐owned housing units authorized by building permits in October were at a seasonally adjusted annual rate of 1,526,000, which was 2.4% below the revised September rate of 1,564,000 and is 10.1% below the October 2021 rate of 1,698,000. Privately‐owned housing starts in October were at a seasonally adjusted annual rate of 1,425,000, which was 4.2% below the revised September estimate of 1,488,000 and is 8.8% below the October 2021 rate of 1,563,000. Billings at architecture firms softened considerably in October with an ABI score of 47.7, as firms reported the first decline in billings since January 2021.
Good help remains hard to find. Back in February, a model put forth by ABC predicted a workforce shortage of nearly 650,000 construction workers in 2022. The Bureau of Labor Statistics predicts roughly 48,600 openings for plumbers, pipefitters, and steamfitters each year, on average, over the coming decade. At the same time, the average age of a Journeyman plumber in the US is 42, meaning a significant number in the Baby Boom cohort have already retired, with Gen X looking to retire in only a few years. Without enough young people taking up the trade, the skills shortage looks like it will only get worse.