Industry Basking in Improved Outlook
The long-heralded recovery of the window and door industry appears to have arrived, according to fenestration industry economics expert, Mike Collins of Building Industry Advisors, who identified the various positive and negative forces influencing the trajectory of industry fortunes.
Collins listed positive macroeconomic factors as strongly improved employment statistics (an unemployment rate some 60 percent lower than five years ago) and a stabilized labor participation rate that has reached the same level (63 percent) as it was prior to the 2008 downturn. The 2017 GDP is expected to improve markedly over 2016, which was the weakest year of the post-downturn expansion.
In regard to interest rates, Collins noted, “We are still at historically low interest rate levels, and the fact that the fed is confident enough in the economy to raise rates is viewed as a positive.”
Positives specific to the residential construction market were listed as surging consumer confidence and high home affordability. A low and declining inventory (about four months) of existing homes on the market puts pressure on house prices and construction demand.
As a result of such factors, there has been a post-election surge in the NAHB/Wells Fargo Housing Market Index, rising to 71 from the 2009 bottom of around 10. Single-family starts continue a slow but steady rise that began in 2011, expected to be 75 percent of the 2006 pre-downturn “normal” level by the end of 2018. Multi-family construction has leveled off after the 2009-2015 surge, yet is still slightly above the 200-2008 “normal” period. Solid growth in remodeling also appears likely through 2018, continuing the trend that began in 2013.
The primary negative is the increasing rate of unfilled job openings. The promised ramp-up in badly-needed infrastructure spending could pull labor from the residential and commercial building contractor sector, worsening the ongoing labor shortage.
On the commercial side, institutional construction is improving (7.5 percent growth expected in 2017). Collins presented recent and projected growth rates for the non-residential sector as a whole and for its major segments. Overall, non-residential new construction was up a whopping 28 percent in 2016 and is expected to cool to a still-respectable 6 percent in 2017. The leading segment for growth is office buildings. Wild cards continue to be falling oil prices that could weaken the overall economy, and – as in the residential market – increasing costs of labor and materials.
The manufacturing side of the industry is generally healthy and stable, with only one manufacturer going bankrupt so far in 2017 – only the second such bankruptcy since 2014.
Industry merger and acquisition (M&A) activity continues to decline on an annual basis since its 2007 peak, excepting a temporary peak in 2015. In the past several years, equipment investment has been more common than plant expansion.
In the window and door industry, glass shortage poses an area of concern. Numerous glass production facilities were shuttered during the downturn. With the recovery at full speed, this has led to glass shortages and long lead times of up to six months. Labor shortage also poses a problem, with both skilled and semi-skilled workers in short supply.
The uncertain future of the ENERGY STAR® program is another wild card. The current administration seeks to transfer the ownership and implementation of ENERGY STAR to a non-governmental entity. “With 85 percent brand recognition among the public, it would be of great benefit to the window and door industry if ENERGY STAR survives, regardless of who administers it,” observed Collins.