By all accounts, 2018 was a great year as far as the U.S. economy was concerned. Sales of HVAC equipment remained strong, the unemployment rate stayed below 4 percent, and the gross domestic product (GDP) increased at an annual rate of 3.4 percent in the third quarter (4.2 percent in the second quarter).
But some analysts believe the economy may soften in 2019, as housing starts slow down, interest rates rise, and existing home sales decrease. This may mean fewer remodeling opportunities, or it could result in consumers deciding to stay put and investing in their current homes and businesses. That would be good news for HVAC contractors.
THE YEAR AHEAD
Coming off of a great year in 2018, Eric Knaak believes 2019 will be strong as well. Knaak is vice president and general manager of Isaac Heating & Air Conditioning Inc. in Rochester, New York, as well as the current chairman of ACCA.
“From what I hear from contractors, most had a very strong 2018, with many reporting double-digit growth and a strong workload,” Knaak said. “Our business was also very strong. We have had strong sales volume and growth, as well as improvement in the bottom line performance, and we are not seeing a slowdown yet.”
In fact, Knaak believes sales will continue to improve this year, as more consumers focus on high-efficiency products, whole-house generators, and connected homes-related products. He expects to see growth across the board, although he acknowledges there may be some headwinds.
“We are projecting strong growth in the commercial end of the business, and on the residential side, we expect to have moderate growth with possibly a bit stronger uptick in the home-performance side of the business,” he said. “Multifamily starts are predicted to slow, and there have been a few signs for us as well. However, we are getting involved in some new opportunities, so we may be looking outside of our traditional markets. The rising interest rates are having a slight impact, and with the changes in Washington, D.C., there are some unknowns as to how markets will respond. All these things reflect directly on the HVAC industry.”
Overall, members of the Plumbing-Heating-Cooling Contractors - National Association (PHCC) reported having a good year in 2018 as well, according to current president, Ken Nielsen, owner of AccuAire Inc. in Reading, Massachusetts.
“Although we expect slower growth in 2019, we do believe there will be some growth,” he said. “While some experts predict a recession is ahead, there have been assurances from leading analysts that the economy is fundamentally strong. Several members of PHCC - National Association’s Quality Service Contractors report that they expect service and repair to continue to be strong in 2019. However, some service and repair contractors have recently seen preliminary signs that the overall economy may be softening. Phone call counts are down a bit, and there are indications that some customers are delaying decisions to make large purchases.”
Many member companies of the Mechanical Service Contractors of America (MSCA) also experienced year-over-year growth in 2018, said current chairman, Kip Bagley, vice president of service, Emcor Services Mesa Energy Systems, Irvine, California.
“Retrofit divisions have been among the highest increases year over year, followed by automation and service,” he said. “MSCA expects to see continued growth in 2019 when it comes to service offerings. I expect to see continued interest and increased sales in equipment and innovations that focus on energy efficiencies, such as VRF systems, chiller replacements, and drive projects, as well as solar and automation equipment installations and upgrades.”
Bagley expects commercial service and repair work to continue growing at the same pace as it has for the last several years.
“There are so many systems that are in various life cycle stages, so when organizations are faced with budget cuts or consolidation, they typically choose to service and repair their equipment instead of making a larger investment in a replacement,” he said. “We don’t see this changing for the foreseeable future.”
Looking ahead for the year, the skilled worker shortage will continue to be a challenge for PHCC members, forcing many business owners to turn down work because of lack of manpower, said Nielsen. In addition, he said businesses continue to struggle with adapting to new technologies, which are always changing.
PHCC anticipates its key political issues this year will relate to the ongoing workforce crisis, infrastructure spending, unfair utility competition, licensure, and immigration reform.
In addition, the association will continue to work with policymakers to drive down the costs of health care for small businesses.
“On the regulatory front, apprentice ratios, continued consideration of refrigerant policies, and possibly more attention on energy efficiency will be our focus with the federal agencies,” said Nielsen. “PHCC - National Association is mindful that while the regulatory process has been somewhat quiet in the past two years, an increase in overall activity may occur in 2019. The shift in the midterm elections could also have some positive effects on key legislation that PHCC supports.”
Not surprisingly, the labor shortage continues to be a concern for MSCA as well. Bagley noted that while this has been a big issue over the last few years, the next five to seven years may be even more of a challenge as baby boomers start retiring.
“The good news is that we are starting to see an increased interest in younger millennials (ages 17 to 23) joining the skilled trades, as well as those in their late 20s and 30s, who are struggling with college loan debt,” he said. “Both groups are finding out that our industry provides excellent compensation, benefits, and opportunities.”
Bagley believes that company culture has a lot to do with attracting and retaining employees. He noted that companies can be successful by having a highly collaborative environment, fostering constant communication, and being dedicated to the ongoing training of their technical workforce.
“We also encourage adopting proven technologies and innovations, which help attract the younger generations,” he said. “Finally, it helps to be a very sales-focused organization, so technicians are always busy and can count on a full 40-plus hour schedule, which is important to most in our industry. Any of these tactics can help contractors attract new employees.”
The labor shortage is a challenge for everyone, which is why Isaac Heating & Air has been focusing on it for the past three years.
“It’s not just about hiring, it is also about retention,” said Knaak. “Our leadership team has made sure that our employees are the priority. This is why we have adjusted benefits, we have increased average wages, and we continue to look at the total team member experience.”
Part of that team experience includes Isaac University, which the company started in 1998. This program offers 21 educational programs at no cost to employees and covers every topic from gas heat to air conditioning to refrigeration to hydronics.
“It is because of this program that we are able to train both our current team, as well as those who are new to the industry,” Knaak said. “We also have a boot camp that we started in 2015, and from that program, we have hired over 100 people who have started a career in HVAC.”
Other concerns Knaak expects to face this year include refrigerant issues — the phaseout of R-22 and the possible phasedown of HFCs — as well as labor issues, health insurance, tax reform, and the impact of Google and Amazon on the HVAC industry.
“There are always going to be challenges, but the question is, what are you going to do about it?” Knaak asked. “Are you going to fight change or will you accept it and adjust accordingly? I feel good about 2019 and the future of this industry. Thanks to social media and limited recruits, companies are having to get better all the time.”
Publication date: 3/25/2019