Contractors

Contractor Optimism Improves | Contractor

While 2020 saw many factors affect the overall health of the plumbing and heating industry—tariffs, regulations, skilled labor supply, supply chain disruptions, civil unrest and more—the COVID-19 pandemic (both its direct effects and efforts to contain and control it) had the single greatest impact on business in 2020, and that will probably hold true for 2021. 

The great fear is that, despite the recent stimulus from Washington DC, the U.S. will slip into a second round of recession. “The case can be made that the U.S. economy is back in recession,” said ABC Chief Economist Anirban Basu. “Retail sales began to slip in October, and according to today’s release, the nation is now losing jobs. With significant segments of the economy still completely or partially shut down, the likelihood is that further jobs losses are forthcoming.”

That said, the overall picture has bright spots worth highlighting.

Nonresidential

According to the December unemployment report from the Bureau of Labor Statistics (released in early January) the construction industry added 51,000 net new jobs in December, according to an Associated Builders and Contractors analysis. (The overall unemployment rate remains steady at 6.7 percent.) During the last eight months, the industry has added 857,000 jobs, recovering 79.1% of the jobs lost during the earlier stages of the pandemic.

Nonresidential construction employment added 29,000 net jobs in December. Nonresidential building was the only subsegment that experienced a net loss in jobs, contracting by 4,300 positions. Nonresidential specialty trade contractors added 18,300 jobs for the month, while heavy and civil engineering added 15,000. The construction unemployment rate rose to 9.6% in December from 7.3% in November and is up 4.6 percentage points from the same time last year.

“Given the estimate that the nation lost 140,000 jobs, nonresidential construction’s performance looks brilliant,” said Anirban Basu. “Indeed, during much of the pandemic period, nonresidential construction has represented a relative bulwark of stability, buoyed by its frequent status as an essential industry and a large backlog coming into the crisis. December was no exception, with the segment adding 29,000 jobs during the month.

“One of the brightest aspects of the employment report is the growth in jobs in heavy/civil engineering and among nonresidential specialty trade contractors. Job growth in heavy engineering suggests that infrastructure spending continues to be an economic stabilizer as the pandemic lingers. ABC’s Construction Backlog Indicator survey shows that the infrastructure segment has held up reasonably well throughout the recession. The growth among nonresidential specialty trade contractors may be an indication that many building owners are using the absence of office workers and visitors to modernize structures, keeping many construction firms, including smaller contractors, busier than they otherwise would be.

“The expectation remains that as vaccination proceeds, the U.S. economy is poised for a significant uptick in growth during the latter half of 2021,” said Basu. “That will set the stage for improving industry performance in 2022 and beyond, particularly if the new administration is able to push forward an aggressive infrastructure stimulus package.”

Residential

Another reason for optimism is in the single-family market. Pent-up demand during the shutdown, along with historically low interest rates, have been prime movers in the uptick in single-family homes.

That demand hasn’t carried over to multi-family dwellings (such as apartment complexes). Since the pandemic began, single family starts are up around 13 percent from the pre-pandemic peak, while multi-family starts are down about 40 percent from their pre-pandemic peak. Existing homes too have fared well, with low inventory helping to prop up prices.

“Fast-rising prices and low inventory are generally good signs for home builders, and those focused on the single-family market are feeling very confident,” said Lawrence D. Cohen, executive vice president of BCA Insurance Group. “Sales should hold steady for the first half of 2021, and the number of prospective buyers will continue to outpace the number of homes available during that time period, even as multi-family construction continues to stagnate.”

Manufacturer Perspectives

Major manufacturers of water heating appliances saw sales take a sharp downturn in March and April with the first big shutdowns. Most have also experienced a strong rebound. Now that mitigation efforts (use of PPE, social distancing, disinfection protocols) are in place and vaccines are being distributed, most are feeling much better about the prospects for 2021 and beyond.

Bruce Carnevale, CEO of Bradford White, calls the current outlook, “Guardedly optimistic. Clearly, COVID-19 will continue to be the most significant challenge to our broader economy in the short term, but with multiple vaccines now available, it is reasonable to expect that the direct impacts of the pandemic will start to subside in the second half of 2021. The residual damage it caused will likely continue well into 2022 and 2023.

“In the short term, our industry has been fortunate because demand for most of the products we make has surged during the pandemic. Unless we have a strong recovery in employment, however, we too will experience the negative impacts a weak economy almost always has on the housing and repair/replacement sectors.

“There are other significant challenges we face, such as growing political tensions, global unrest and the significant changes in policy direction with the new administration and a Democrat controlled congress. While there will be both good and bad that emerges as a result of the new administration, we expect a much more aggressive approach to regulatory and tax policies. That generally leads to businesses taking a more cautious approach to investments and employment as they shift resources to comply with new regulations and manage their businesses in a higher-cost environment.”

Brian Fenske, Director of Commercial Sales, Navien, believes the pandemic gave an unexpected boost to home improvement/home investment projects, and hopes that the trend continues. “We have to remain optimistic,” Fenske says, “that the home improvement momentum will continue into 2021, but I have great concerns of the commercial markets. The commercial project planning in 2020 has shown a 20-40% reduction in projects created…. We were very fortunate in 2020 finishing with a strong year of growth.”

David Frederico, Director of Marketing for Rinnai, hopes that at least some of their customers on the commercial side will see the coming year as the time to invest. “We’ve been working to roll out additional programs to help with some of those commercial businesses that may be strapped from a capital standpoint.” Rinnai’s new commercial leasing program includes maintenance and even upgrades.

Rinnai has also been investing in its domestic manufacturing capabilities, in its salesforce and even its marketing department. “Our big investment is really on the innovation standpoint,” Frederico says, “because we recognize the need not only to expand into new product categories, but also—as circumstances change or as customer needs change—we need to have the flexibility to reevaluate our business and do things differently.”

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