Following two boom years, economic signs point toward a slowdown in HVACR industry growth in 2023, but distributors who take the changes in stride should be OK.

That’s the word from the folks at HARDI, the Heating, Air Conditioning & Refrigeration Distributors International, who offered industry forecasts for the new year during the group’s annual conference in Houston in December.

“Our monthly sales trends, our HARDI-nomics, have been very consistent over the last quarter, saying all the numbers indicate to about a halving of the rate of growth from what we’ve had in the previous year,” said HARDI CEO Talbot Gee during an interview in Houston.

“That’s still pretty healthy, but it’s going to be, it’s going to feel like, a potentially double-digit decline in growth rate (compared to) what most companies have experienced to date,” Gee continued.

Figures from HARDI officials about the extraordinary growth in 2021 and 2022 add context to that prediction: The wholesale HVACR distribution market was worth an estimated $52.8 billion in 2022, a jump of about 23% from the previous year. The median year-over-year sales growth among distributors in 2021 was 18.9%, well above the median annual growth rate of 5.8% that distributors averaged between 2011 and 2020.

“The sky’s not falling,” Gee said. “There has to be some regression to the norm. ... We do see demand receding a hair,” as well as some “price objection” to recent inflation-fueled equipment price increases that could affect the market, he added.

By the third quarter of next year, according to HARDI’s forecast, the growth in the residential market, in dollars, should be at around 4.5%; by comparison, the third quarter of 2022 saw 19.5% growth in the residential market. Nonresidential market growth will be in slightly negative territory, at -0.2%, by the third quarter of 2023, whereas that market grew by 11.6% in the third quarter of 2022.

“There is in price cushion, to some degree,” said Tim Fisher, HARDI’s director of market intelligence. “And that, in theory, will hopefully protect top-line values here.”

Distributors shouldn’t sweat the predicted growth slowdown too much, Gee said.

“As long as you’re taking advantage of things like financing, as long as you are providing real value-add to the market in terms of your service, in terms of your consistency, you can get paid for that and should get paid for that,” he said. “So I don’t see a massive margin erosion, but it is going to be a slowdown.”

Contractors, however, need to make timely payments to their distributors in order to help keep the latter from a “cash crunch” related to having to finance a lot of the inventory they stock.

“Inventory mix is so off and it’s going to take months for that inventory mix to still get worked out,” Gee said. “For the contractors out there, look to be rewarded for paying quickly and you will be rewarded, most importantly, with access the product that you use.”