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Forecast shows 2013 inching along

A year ago at this time, I think Chris Peel was pretty much on the mark.

Peel, chief operating officer for Rheem, said the common wisdom at the beginning of 2012 was that the plumbing and HVAC markets would be up 3%-6%, but he thought it would be more like 1%-3% on the commercial side. Residentially, he believed 2012 water heater sales would increase by 1%-2%, but the residential HVAC market would be flat.

One exception was the tankless water heater market, expected to rise 3%-4%, but Peel pointed out that 7.8 million water heaters would be sold in 2012 and perhaps 350,000 will be tankless.

“There aren’t a lot of drivers right now,” Peel remarked back then, so serving customers better and having good products at the right price become more important.

A year ago, Anthony J. Guzzi, president and CEO of EMCOR Group, expected a slight upturn in 2012, in line with the FMI Construction Outlook that predicted both residential and most non-residential construction sectors turning up in 2012.

There was just too much uncertainty, Guzzi told us back then, whether it was about the state of the U.S. economy, fuel prices, or the still-ongoing Euro crisis.

“We live in an economy right now that if we have a three to six-month window, that’s as good as it gets,” Guzzi said at the beginning of 2012.

And that’s pretty much what we got from the past year, up a couple of percentage points unless you were in a good niche market or had a unique niche product.

So how about this year? So as to not get irrationally exuberant, I’ll use contractor David Duggar’s characterization of the market as inching along.

While some contractors say business is picking up, PHCC – National Association President Dugger believes construction overall will inch along as it has in 2012, however, early indications from economic experts show an improving residential market in 2013. 

“That is extremely good news, as it affects the majority of our members,” said Dugger. “There also are predictions of slight growth on the commercial side.”

It seems that the residential turnaround is here, simply because the market has been so slow that inventories are low.

Dale Stroud, senior director, marketing and offerings, Uponor Inc., said his firm believes that 2013 will be a better year than 2012 because of macro-economic factors. For example, historically the backlog of unsold homes has hovered at just above 300,000. It is now in the 150,000 range, so, by that measure, supply of available homes is tight.

Annual housing starts, while still well below one million, are trending upward steeply. Architectural billings are up and non-residential construction put-in-place is back up near $300 billion. Employment is up and other general economic trends are all heading in the right direction, Stroud noted.

That’s reinforced by construction industry consultant FMI Corp. FMI, Raleigh, N.C., reports that residential construction is taking a turn for the better as home sales improve in some areas, while multifamily is generating increasing interest.

“If there is a high tide coming, it will be in the form of residential construction, which will help bring commercial construction out of the doldrums,” FMI said in its Construction Forecast. “Our forecast for 2013 construction put in place calls for an 8% increase to $892 billion — the largest percentage increase since 2005, but only just returning to 2003 levels of construction in current dollars.”

Scott E. McDowell, general manager of Commercial Brass and VP of marketing at Zurn, said his firm’s research for 2013 looks more positive than previous year’s due to several data points.

“The residential market is returning, which is a leading indicator to the commercial market; private funding is up 10% year over year, signaling a switch from government projects to private projects (private projects tend to complete on time and request more differentiated product offerings than public sector); and contractor backlogs are increasing from earlier in the year, signaling a greater workload for the commercial contractors in our market,” said McDowell.

According to Zurn research, 2013 is signaling continued growth in healthcare, and new growth in commercial buildings and retail.

This isn’t the kind of turnaround that we’ve been hoping for, but at least the lines on the graphs are trending upward.

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