HVAC Contractors Are Bullish on 2017
Nationwide labor shortage remains the most significant concern
Contractors started out 2017 feeling positive about short-term growth, according to ACCA, which reported its January 2017 Contractor Comfort Index (CCI) scored a 78 — up two points from its January 2016 rating. The CCI is calculated based on a survey of ACCA contractor members who are asked how positive they feel about new business prospects, existing business activity, and expected staffing decisions in the short-term future.
“If you look at the CCI for 2016, contractors were feeling good about short-term growth all year,” said Don Langston, chairman, CEO, and president, Aire Rite Air Conditioning and Refrigeration Inc., Huntington Beach, California, and the chairman of ACCA. “The CCI remained at some of the highest levels it has ever reached in 2016 and didn’t drop below 70 in any month. This is an indication that contractors felt really good about 2016.”
A VERY GOOD YEAR
On a personal level, Langston is very happy with 2016, which turned out to be a great year for his company.
“Both our top-line sales and bottom-line profitability were up over 2015,” he said. “We are bullish and forecasting that 2017 will be better than 2016. The election of a Republican-controlled Congress and president should be friendlier to small businesses.”
Aire Rite specializes in commercial HVACR and focuses on helping customers improve comfort, energy efficiency, and IAQ. Langston is confident of continued growth in this market.
“Entire system and building retrocommissioning is one of the fastest-growing segments of my business,” he said. “Being able to improve the overall delivered efficiency of rooftop package units and their connected air distribution systems adds tremendous value to businesses and homeowners alike. The good news is that we can routinely raise the overall system efficiency to 85-90 percent with a two-year payback period.”
Joseph Lansdell, president of Poynter Sheet Metal, Greenwood, Indiana, and president of Sheet Metal and Air Conditioning Contractors’ National Association (SMACNA), is also pleased with how 2016 turned out. “Our members’ man-hours were ahead of our projections,” he said. The year-end months were particularly strong. This, we hope, bodes well for 2017. Anecdotal evidence confirms a projected continuation of slow and steady growth in our members’ commercial and institutional markets.”
With the renewed focus on tax reform, energy legislation, and infrastructure, there could be many opportunities for the HVAC industry this year, said Lansdell. “In addition to traditional infrastructure, President Donald Trump proposed a $1 trillion, 10-year, revenue-neutral energy infrastructure plan in his first 100 days to upgrade energy exploration, transportation, and refining.”
On the regulatory front, a long list of regulations governing environmental standards, energy codes, and building standards are just a few that will be subject to a promised regulatory review, noted Lansdell.
“The Trump administration’s transition team has a goal of eliminating half of current rules and regulations, and the president recently promised to eliminate 75 percent of all federal rules,” he said. “Should they even review half of the federal rules and change a fraction, it would be impressive. But, many parts of the building and energy code are consensus codes coming from industry leaders.”
Chris Carter, vice president, Murphy Co., St. Louis, and chairman of Mechanical Service Contractors of America’s (MSCA’s) Board of Managers, agreed that 2016 was a good year for many contractors.
“There are certainly areas of the country where economic growth is exceeding the national average,” Carter said. “States in the West and Southeast are expected to see the strongest growth, while the Midwest and Northeast are expected to be at or below the national average.”
Many economists suggest sluggish growth in 2017, which means contractors will continue to compete for the same business.
That said, the commercial and industrial/institutional markets are doing well, said Carter, with more clients making long-term investments in their infrastructures.
“Considering that many owners tend to hold back on spending decisions prior to an election, we are cautiously optimistic and expect some continued improvement coming out of the election season,” Carter said.
While the indicators are looking up for 2017, there are big concerns about how the industry will continue to thrive amidst its worsening labor shortage. With experienced installers and technicians retiring, there is a ‘gray tsunami’ rolling through the HVACR industry, said Langston.
“The knowledge and skills gap is widening, and we are losing the tribal knowledge acquired through decades of hard work of many highly experienced people,” he said. “The millennials are only entering our industry at about a 50 percent replacement rate, so we have a lot of work ahead of us when it comes to marketing our industry as a desirable career path.”
That work involves embarking on an extreme makeover of the industry, starting with educating grade school and middle school students about the HVAC industry.
“Only then can we effectively recruit, train, and motivate the next generation of workers,” Langston said. “By the time these kids start high school, we need to steer them into basic vocational hands-on training,” said Langston. “Many of our high schools have failed our kids when it comes to providing middle- to higher-level vocational skill exposure through shop classes.”
Recruiting key talent continues to be a primary challenge, said Carter.
“Significant competition and headhunters calling current employees make it particularly difficult to find and retain talent,” he said. “In many areas, qualified field labor resources are becoming even more difficult to find. With the increasing rate of baby-boomer retirements, who are our best resources for technical industry expertise, this issue will only intensify in the coming years. The most highly skilled workers will be in high demand, so contractors should expect labor costs to continue to increase.”
Labor talent will become an increasingly important issue as the pool of available and interested workers becomes shallower, said Lansdell.
“On the other hand, technological advances, lean practices, prefabrication, modularization, and collaborative project methods will reduce waste, eliminate re-work, and increase productivity to the point where contractors can do more with less,” he said.
And while the lack of a trained and flexible workforce is viewed as a threat by many, those who have a well-trained and flexible workforce will view it as a competitive advantage, said Lansdell. “Contractors who can rapidly develop younger employees will also have an advantage in the market in coming years.”
Beyond the labor shortage, contractors are also concerned about the future of health care.
“Health care is one of our highest cost line items,” Langston said. “Every year, we face the challenge of providing a robust benefits package for our team members and still maintain a decent profit. We hope to see a market-driven approach to health plans that will allow us to cross state lines to get competitive pricing.”
Changes to the health care law could affect the industry in other ways, as well, especially for contractors who work in the health care segment of the HVAC market.
“During the development and implementation of the current regulations, many health care businesses slowed down their spending until they were clear on how the reform would impact their businesses,” said Carter. “Contractors could see a similar trend as this legislation is potentially reformed.”
This year is shaping up to be an interesting one, said Lansdell.
“Approximately every four years, SMACNA’s New Horizons Foundation conducts a study to help predict future trends among contractors, architects, and specifiers of HVAC systems. One thing I found interesting in this year’s report is that the industry has changed more in the last five years than in the prior 30 years and that this pace of change will continue. That is something I can attest to.”
Publication date: 3/15/2017