CHICAGO — What is on the horizon for plumbing contractors in 2014? The good news is the residential market is showing growth; the not-so good news is that commercial construction is still having growing pains.
According to FMI’s Construction Outlook 3rd Quarter 2013 Report, residential construction is the only sector that FMI sees growing in double digits, and commercial construction is still waiting on consumers to stabilize: work their way out of debt or try to find good paying jobs.
Despite growing pains in the commercial construction market, industry professionals are optimistic about 2014.
“I have a good feeling about what plumbing contractors will experience in 2014,” said Steve Rivers, PHCC — National Association president and president of Rivers Plumbing, Heating & Air in San Francisco. “The economy continues to slowly improve, which makes our members more optimistic about what’s ahead.”
Even though Rivers is optimistic, he does admit that there will certainly be challenges in 2014.
“We’re all struggling with the best way to run a profitable business in this changed economic environment,” explained Rivers. “As the economy improves, we’re looking for enough qualified workers to meet demand. And as technology advances, we’re making important decisions about which new technologies and services would be the best fits for our company and customers.”
How are contractors doing in different sectors of the business?
According to Rivers, overall, association members are saying they are busy, new construction seems to be recovering, and contractors, overall, have a more positive outlook for the economy right now.
“There are some parts of the country that are doing well, particularly related to energy development, like Texas, North Dakota and Montana,” said Rivers. “Activity has picked up in the states that were hit hardest by the downturn, including Florida, Arizona and California. Other areas of the country show modest but promising signs of growth.
“Many contractors are using a cautiously optimistic approach, being selective in growth,” added Rivers. “PHCC continues to recommend that the best strategy is move forward with the confidence that things will continue to improve.”
No matter who you talk with, no one denies that that Affordable Care Act is affecting businesses across the board, plus other government policies.
According to Rivers, there definitely is a lot of interest among association members in the Affordable Care Act and how it will affect their businesses. There also is a lot of uncertainty.
“We encourage contractors to examine their options and learn as much as possible about the ACA,” said Rivers. “To help them stay informed, we’re offering webinars, informational bulletins, and sending regular updates about any requirements or deadline changes that affect them.”
According to FMI’s Construction Outlook 3rd Quarter 2013 Report, there is an effect of government spending on construction, which is shrinking at about 4% to 5% from last year to 2013, with more expected as there may be more “sequestration-type” cuts. The report also notes that health care construction has slowed, in large part because of the uncertainty surrounding The Affordable Care Act and health insurance in general.
And don’t forget that this year will be the midterm elections.
“In the legislative and regulatory arena, it will be an important year,” said Rivers. “The midterm elections will influence activity on Capitol Hill. We’ve seen evidence recently that the regulatory agencies will continue to “flex their muscle,” and we expect more of that in 2014. PHCC is on top of all of the issues, and will continue to represent p-h-c contractors’ interests on the legislative and regulatory fronts.”
Manufacturers’ view points
According to Carl Pinto, marketing director at Bradford White, the company is expecting the 2014 residential construction market to be slightly more favorable over 2013 as the housing market continues to strengthen.
“The repair and replacement sectors are always promising in both the residential and commercial markets,” said Pinto. “We suspect this will also be true for 2014 coupled with a slight increase in new home construction.”
According to Pinto, the northern mid-plain states are doing well in regards to the residential construction market, due in part to an increase in mining and farming in these states.
Regarding trends in the water heater market, water heater efficiency, or “green,” is always a trend, but the popularity with consumers often fluctuates based on government or utility rebates, said Pinto.
“Once these rebates are depleted, the demand for these types of water heaters also declines,” explained Pinto.
According to David Chisolm, director of marketing at A.O. Smith, on the commercial side the water heater manufacturer is seeing the market flat for next year, and there appears to be a bit of a downturn in government spending on schools and infrastructure projects.
“Schools will be slower than the overall market; retail is slowing down a bit too,” said Chisolm. “We are looking for 2014 to be flat to what 2013 was from a commercial standpoint. “On the residential side we see a bit of a pickup. Multi family has been a growth sector in the residential construction.”
For A.O. Smith, housing completions in 2012 were in the 650,000 range; in 2013 housing completions were in the high 700,000/low 800,000.
“A.O. Smith’s plan for 2014 is for it to pick up slightly over the 1 million mark in housing completions, so a couple hundred thousand unit increase for 2014,” said Chisolm.
Regarding trends, A.O. Smith is now seeing more of an interest in heat pump water heating technology that is a hybrid electric product.
“These products are more energy efficient than a standard electric water heater,” said Chisolm. “There is a significant savings that a homeowner can benefit from. One thing that is really driving adoption is the federal tax credit in place this year. Don’t know yet if it will be reinstituted in 2014. We are also seeing lucrative utility rebates for these more energy efficient technologies, so this is an incentive for homeowners to put in more energy efficient products in and this changes homeowner behavior.”
For Zurn, there may be some hot spots in commercial construction, but overall it will continue to be slow.
“The Private sector is the driving factor for that growth,” said Zurn’s Global VP Marketing and Business Development Manager Scott McDowell. “We don’t see government or public spending sector thrive like it was a couple years ago because of limitations government has seen. However, the good news is that we are talking about growth, not shrinkage, which we have talked about for the last couple of years. We will probably see a low single digit, if not flat growth.”
The hot spots mentioned by McDowell are in retrofit — this is a shining star driven by return on investment of retrofits.
“As funding is limited in the market people are finding ways to upgrade facilities based on water conservation or via the improved efficiency, so retrofit continues to thrive,” said McDowell.
Regarding residential construction, McDowell forecasts that it will be the same as in 2013.
“If you look at permits vs. actual starts, they are hovering around 900,000, which is not near the 2 million mark that was there before bubble burst,” said McDowell. “Typically the U.S. economy sees between 1.2 and 1.5 million households a year. If you look at all the stats we are building at a slower rate than what the demand is currently. I don’t see this catching up to us in the near future because of the financial piece of the economy. I think it’s grown around the high teens / lower 20s, and most indicators are saying this will remain the same for 2014.”