Assessing the U.S. Economy

September 27, 2001
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A startling and stunning terrorist attack on the United States has likewise stunned the nation’s economy. A key word often being used by economic experts right now is “uncertainty.”

Consumers clearly have been affected. A recent New York Times/CBS News poll indicates that, for the first time in over a decade, most Americans believe the economy is getting worse. The Times also reports that businesses that were mulling possible cutbacks due to the economic slowdown before the attack are now seriously considering or implementing cutbacks.

President George W. Bush remains optimistic that a rebound can and will occur. His administration is said to be poised to take a variety of actions in order to keep the U.S. economy moving, and the president now has broad support among Democratic as well as Republican lawmakers to take those actions.

But if the need to retrench grows among businesses, it can have a ripple effect that will be felt throughout the country.



What’s Next?

In an article titled “In the Wake of Catastrophe, What Next for Contractors?” in the current issue of Punchlist, an e-mail newsletter from construction consulting firm FMI, Raleigh, NC, authors Robert “Chip” Andrews, chairman and ceo, and Walter R. Adamchik, consultant, state, “The impacts to the already faltering economy are difficult to forecast.”

Taking a look at U.S. history, it “shows that in 28 major crises from 1940 to 1988 (events such as Pearl Harbor, the assassination of President Kennedy, and the start of the Gulf War) the Dow Jones Industrial Average fell 5% initially. But, after about four months, it rose 5.1%.”

A positive is that “money will be spent on rebuilding damaged buildings, on homeland defense, and on new security measures.”

Andrews and Adamchik note, “In the days following the attacks, a number of construction projects in New York City were shut down because so many craft workers were volunteering in the rescue.” Because of this ongoing effort and possible worker shortages in reconstruction, “Skilled labor may be drawn to New York from other parts of the country and Canada.”

Will some of the money for reconstruction in New York and at the Pentagon be diverted from other construction projects? The authors say it’s too soon to tell.

One important tip is: Don’t panic. “Continued emphasis on the basics of your business is the first essential to surviving this crisis.”

Also important is: “Don’t stop investing in marketing; just do it a lot more wisely.” Also, with this tragedy, bear in mind the importance of human capital and the need for succession planning for the continuity of the business.



Leading the Recovery

According to Ken Simonson, chief economist for the Associated General Contractors of America (AGC), “Overall, construction is likely to decline from its recent peaks as the economy absorbs the shock from these attacks. But the industry will lead the recovery in the hardest-hit regions by providing the recovery and rebuilding that is needed.

“In addition, high-paying construction jobs will pump money into local economies wherever government and private employers invest in making facilities more secure or in building backup capacity for critical functions.”

The AGC says there is an immediate need to provide office space for workers displaced from lower Manhattan and the Pentagon, which will provide a small lift for these regional markets.

Additional spending is expected to strengthen security at governmental and some private facilities, while the Defense Depart-ment is likely to spend more on construction of all types.

Airport construction is likely to decline, and hotel and other travel-related sectors will suffer and may move away from resorts that are reached mainly by air.



HVACR Perspective

Kevin W. Holland, vice president, communications and information services, Air Conditioning Contractors of America (ACCA), remarked, “In speaking to several ACCA contractor members, the consensus is that the economic slowdown impacting the industry predates the September 11 events, and is likely to remain flat through the first quarter of 2002.

“Projects are being second-guessed — in other words, projects that may have once moved swiftly through to completion are being held up due to concerns over the overall economy. Many contractors, therefore, have experienced a slowdown.”

He added, “What effect the September 11 attacks will have on the hvacr industry remains to be seen. There is no doubt that the hospitality industry has been devastated by the loss of business, particularly in DC and New York, and all over. This may have a negative impact on some hvacr contractors as the hotel industry tries to recover.”

Holland said that one sector that depends heavily on temperature control — telecommunications and data centers — may get a boost. “Many of these companies, particularly web hosting providers offering ‘server hotels,’ were facing bankruptcy because of extreme overcapacity. Now, some are filling up due to the loss of storage capacity in Manhattan.”



Manufacturer Outlooks

York International Corp., York, PA, echoes the uneasiness that many companies feel. Helen Marsteller, York spokeswoman, said, “The economy is going to be very uncertain over the next several months.”

On September 25, American Standard Companies Inc., Pisca-taway, NJ, parent of American Standard and The Trane Company, lowered its earnings estimate based on weaker economic conditions. The lower estimate is due to a decline in sales for the third quarter of about 4% compared with a record-setting quarter a year ago.

The company reported that this shortfall is due mostly to delayed purchases and installations of commercial air conditioning equipment.

“As we entered the third quarter, we had projected 1 to 2 percent sales growth,” said Frederic Poses, chairman and ceo. “The reduction in sales growth — from positive 1 to 2 percent to negative 4 percent — is expected to create a revenue shortfall of about $100 million.

“This shortfall would have reduced profitability by about 30 cents per diluted share. However, better than expected results from productivity and other cost-reduction initiatives allowed us to offset about 10 cents of the potential drop and produce the estimated flat earnings for the quarter.”

Providing some perspective on the overall market, Bob Schjerven, ceo, Lennox International Inc., stated that the hvacr industry is truly international in scope. “The marketplace today has no borders and is very global. The free flow of equipment and technology across country borders is causing dramatic changes.”

Commercial customers, he noted, “are demanding more information about the operation of the unit, more flexibility in controlling the operation of the unit, and an open protocol that allows them to choose the type of building automation or energy management system they want to use.” These customer requirements will remain and must be met.



Economic Stimulus

Two members of the U.S. Senate, Max Baucus (D-MT) and Charles Grassley (R-IA), suggested that any economic stimulus legislation designed to jumpstart business should be significant, but should also be temporary.

As winter approaches, one potential aid to the economy is that natural gas and oil prices have dropped. Earlier projections had said that prices would increase.

In a statement that he made after the attack on Pearl Harbor, Winston Churchill recalled a remark that had been made to him years earlier by Edward Grey, “that the United States is like ‘a gigantic boiler. Once the fire is lighted under it, there is no limit to the power it can generate.’” The events of September 11 certainly lit the boiler, and the nation’s rebuilding and construction power may well help to regenerate U.S. economic power.

Sidebar: Latest Unitary Shipment Numbers Are Looking Up

“Factory shipments in August of 541,623 heat pumps and central air conditioners exceeded the number shipped the same month a year earlier by eight percent, reversing a 13-month trend,” reported Ed Dooley, vice president of communications and education, Air-Conditioning and Refrigeration Institute (ARI). “August was the first month since June of 2000 that monthly shipments were higher than the same month a year earlier. Year-to-date combined unitary shipments of 4,878,425 units are down seven percent, but heat pumps are on a record pace.

“Heat pump shipments were up by 26 percent in August to 119,418 units compared to August 2000, and are up nine percent for the year at a year-to-date total of 1,052,414 units.”

Meanwhile, ARI announced that shipments of large-tonnage liquid chillers — units used for comfort cooling in buildings — are down slightly as of August compared to last year. “In 2000, manufacturers shipped 7,731 chillers, an 18 percent jump over 1999,” Dooley said. “Shipments of reciprocating chillers are slightly off last year’s pace, which totaled 16,207 units.”

Sidebar: Big Names Sign Up for ISH NA 2002

More than 70 hvacr and plumbing companies have signed up to exhibit at ISH North America (NA), a newly launched international trade show scheduled for Oct. 31-Nov. 2, 2002, at the National Trade Centre in Toronto, ON, Canada. ISH NA spans the residential, commercial, industrial and institutional sectors.

These exhibitors include A.O. Smith, Bradford White, Charlotte Pipe, Embassy Industries, Gerber, Halsey-Taylor, In-Sink-Erator, ITT Fluid Handling, Moen Faucets, Ondine, J.R. Smith, Slant/Fin, Whirlpool Corp., Wirsbo, Woodford, and Zurn Industries. Several other “highly recognizable” brand name companies also are close to committing, according to ISH NA show management.

ISH NA also has received commitments from Germany, Spain, Italy, Turkey, and Switzerland to support multi-exhibitor pavilions in Toronto. Currently, 360,000 sq ft of exhibit space have been reserved. To view the current ISH NA exhibitor list, go to http://www.usa.messefrankfurt. com/ISH/index/htm (website).

Separately, Messe Frankfurt announced that ISH NA will be held at the Manadalay Bay Resort in Las Vegas, NV, Sept. 16-18, 2003.

Messe Frankfurt, Inc., hosts ISH NA in cooperation with the American Supply Association, the Canadian Institute of Plumbing and Heating, and the Plumbing-Heating-Cooling Contractors — National Association. ISH stands for International Sanitation & Heating. Each association will hold its annual meeting in conjunction with ISH NA in 2002.

To reserve booth space or ask exhibit-related questions, contact Dirk Ebener, Executive Director, Messe Frankfurt, Inc., 1600 Parkwood Circle, Suite 515, Atlanta, GA 30339; 770-984-8016 (ext. 17); 770-984-8023 (fax); dirk.ebener @usa.messefrankfurt.com (e-mail).

Publication date: 10/01/2001

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