Confidence Encourages Efficiency

April 3, 2006
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Ken Simonson, AGC chief economist
Overall construction including housing, highways, and manufacturing reached formidable heights capping off its seasonally adjusted rate at $1.16 trillion. Up 1 percent from November and 8.1 percent from December 2004, spending in 2005 as a whole totaled $1.12 trillion, an increase of 8.9 percent over 2004, according to the Associated General Contractors of America (AGC).

"The best performing private, nonresidential segment in 2005 was manufacturing construction, with a 21 percent year-over-year gain," said Ken Simonson, AGC chief economist. "A report on manufacturing from the Institute for Supply Management adds to my belief that more companies will opt to build or expand plants."

On the residential side, in spite of January's 16 percent jump in new-home construction, February's total housing starts were down 7.9 percent according to the National Association of Home Builders (NAHB). Single-family home construction dipped 2.3 percent to 1.8 million units and multifamily starts fell 30.4 percent from January to February.

"So far this year, housing starts have received a boost from unusually mild winter weather, but we expect to see these numbers move further down in the months ahead," said David Seiders, NAHB chief economist. "Last year's record-level of housing starts and double-digit price appreciation were unsustainable."

"After a record-setting sales pace in 2005, home builders are seeing an orderly cooling down process as the supply-demand balance shifts, and buyers gain more leverage," noted David Pressly, NAHB president and home builder from Statesville, N.C. "While many builders are now offering more sales incentives to adjust to this changing environment, housing demand continues to remain quite healthy by historical standards."

CONFIDENCE OUTWEIGHS MARKET DROP

The NAHB/Wells Fargo Housing Market Index (HMI) experienced a one-point decline for March, indicating that housing demand and sales are gradually returning to a sustainable pace, according to the NAHB. The HMI gauges builder perception of the current and future single-family home sales asking them to rate it as good, fair, or poor. Builders are also asked to rate the traffic of prospective buyers as average, low, or very low. The numbers are then calculated and used to create a seasonally adjusted index showing that any number over 50 indicates that more builders view sales conditions as good than do as poor. March's HMI measured 55. February's was 56, and January's was 57. Even though there has been a gradual decline, both the current and expected sales components remained in the positive at 60 and 62, respectively, for March.

BUILDERS BEGIN EFFICIENCY EDUCATION

Jared Blum, president and CEO of Polyisocyanurate Insulation Manufacturers' Association (PIMA), recently offered his opinion to builders during a late February AGC conference call with Simonson and Michael Carliner, staff vice president for economics, NAHB.

"Because of state and local requirements in the building materials area, if you are a building contractor you are going to be looking for ways to reduce your buildings' energy footprint."

He continued to instruct and encourage builders, both residential and commercial, that, "Energy Star is a terrific economic incentive program," and that the Energy Policy Act of 2005 was a "very positive thing for the builder community."

What does all this mean to the local HVAC contractor? Opportunity. Builders are beginning to hear the same message that HVAC contractors have been hearing. A marketing report from Jim Groff, president of Baublitz Advertising, reminds contractors that in order to retain market share, they must demonstrate their value to the entire distribution channel, including builders. If contractors start offering complete solutions to builders' energy-efficiency woes, new partnerships and new business opportunities could be the result.

"People most likely won't downsize their energy usage," said Blum. "So, we'll need to build better products."

Building better products means using better materials, HVAC systems included.

Publication date: 04/03/2006

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