Forecasting is Tricky Business
It is the time of year for reviewing all the forecasts from 2006 and making early adjustments to the 2007 plan. If you’re at all like me, most of you hope that no one will recall the silly projections you made last year at this time. Funny thing, I can’t remember any of the predictions that I sometimes make in this magazine. Selective memory, I guess. This insulates me from feeling foolish at the end of a year while others try to dissuade me from taking my annual S.W.A.G. into the New Year.
However, forecasting is not an easy task for anyone. Both economic and weather forecasters tend to be quite accurate in the middle of steady cycles and almost worthless or misleading when system variables are turbulent. Magazine editors are saddled with a similar plight, though we tend to be even less accurate when it comes to predicting the weather. As a small business owner or manager, you do not have the option of hiding out; you must lead the team with words of wisdom and a business forecast that has some note of credibility - even if you are a team of one.
The housing meltdown is continuing and the commercial building sector, which has mostly balanced out the residential weaknesses, should become more difficult to read. According to Ken Simonson, chief economist for the Associated General Contractors of America (AGC), and one whom I believe has a better batting average than most, there is both good and bad news in the latest economic data from the U.S. Census Bureau that arrived on Jan. 3. Of course, single-family construction is suffering, but multifamily is doing pretty well, and he expects both trends to continue.
Regarding the balance of commercial and residential activity, Simonson said, “Energy- and power-related construction, hotels, hospitals, and rental housing will all perform well, while single-family and condo construction will sink the totals.”
Now, to the weather.
If the local meteorologists can’t get it right, you can always turn to the government. The National Oceanic and Atmospheric Administration forecasted an onslaught of major hurricanes in the North Atlantic during 2006 that didn’t occur. Only two tropical storms made landfall in the United States, which had a big impact on energy costs in the fall and has eased current prices. Who would have thought national average gasoline prices would be around $1.75, and that there would be plenty of heating fuel oil for the Northeast?
With such a dubious record for forecasting, The NEWS takes a big risk at labeling my opinion column as Murphy’s Law from this point forward - however, so be it.
Still, a few projections a la Murphy: Green buildings will be challenged in 2007 to prove their energy efficiency savings claims, and the lack of mechanical system commissioning will gain the attention of the Environmental Protection Agency. The Department of Energy will become increasingly interested in the validity of energy-efficiency claims by this industry’s manufacturers. And, finally, to jump one year ahead, 2008 will see the adoption of quality installation procedures by the Energy Star program.
However, the most insightful projection I’ve read comes from a panel of 60 economists who participated in the Wall Street Journal’s semiannual economic forecasting survey which offered an optimistic outlook for 2007. These results suggest that the “service sector should keep humming along as the recent weakness in housing and manufacturing abates and the Federal Reserve begins to reduce interest rates.”
Many HVAC contractors are in the service business. That shouldn’t be too much of a stretch to think that some people can expect to have a very good year. If you’re not currently optimizing your service business, give it some thought.
Good luck with your own forecasting.
Publication date: 02/12/2007
However, forecasting is not an easy task for anyone. Both economic and weather forecasters tend to be quite accurate in the middle of steady cycles and almost worthless or misleading when system variables are turbulent. Magazine editors are saddled with a similar plight, though we tend to be even less accurate when it comes to predicting the weather. As a small business owner or manager, you do not have the option of hiding out; you must lead the team with words of wisdom and a business forecast that has some note of credibility - even if you are a team of one.
WHAT THE PROS SAY
Economists and other crystal ball soothsayers had a fair amount of success in pegging what was happening in 2006. However, 2007 should be a different story. As a teacher once told me, “If you can say supply and demand, and understand percentages, you can be a reasonably intelligent-sounding economist.” Add to that the fact that it wasn’t too difficult to discern in the second half of last year that the housing bubble had burst, and the result was that most eggheads were right on target about many of the items that affected construction.The housing meltdown is continuing and the commercial building sector, which has mostly balanced out the residential weaknesses, should become more difficult to read. According to Ken Simonson, chief economist for the Associated General Contractors of America (AGC), and one whom I believe has a better batting average than most, there is both good and bad news in the latest economic data from the U.S. Census Bureau that arrived on Jan. 3. Of course, single-family construction is suffering, but multifamily is doing pretty well, and he expects both trends to continue.
Regarding the balance of commercial and residential activity, Simonson said, “Energy- and power-related construction, hotels, hospitals, and rental housing will all perform well, while single-family and condo construction will sink the totals.”
Now, to the weather.
If the local meteorologists can’t get it right, you can always turn to the government. The National Oceanic and Atmospheric Administration forecasted an onslaught of major hurricanes in the North Atlantic during 2006 that didn’t occur. Only two tropical storms made landfall in the United States, which had a big impact on energy costs in the fall and has eased current prices. Who would have thought national average gasoline prices would be around $1.75, and that there would be plenty of heating fuel oil for the Northeast?
MURPHY'S LAW IS BORN
OK, time to come clean. I did suggest in print that we would never again see gas pump prices below $2.00 per gallon, a mistake for which I will soon benefit as I happily fill up my wife’s gas-guzzling SUV this week. And, yes, I did privately suggest that the St. Louis Cardinals would not win the World Series, a mistake for which I paid dearly in print.With such a dubious record for forecasting, The NEWS takes a big risk at labeling my opinion column as Murphy’s Law from this point forward - however, so be it.
Still, a few projections a la Murphy: Green buildings will be challenged in 2007 to prove their energy efficiency savings claims, and the lack of mechanical system commissioning will gain the attention of the Environmental Protection Agency. The Department of Energy will become increasingly interested in the validity of energy-efficiency claims by this industry’s manufacturers. And, finally, to jump one year ahead, 2008 will see the adoption of quality installation procedures by the Energy Star program.
However, the most insightful projection I’ve read comes from a panel of 60 economists who participated in the Wall Street Journal’s semiannual economic forecasting survey which offered an optimistic outlook for 2007. These results suggest that the “service sector should keep humming along as the recent weakness in housing and manufacturing abates and the Federal Reserve begins to reduce interest rates.”
Many HVAC contractors are in the service business. That shouldn’t be too much of a stretch to think that some people can expect to have a very good year. If you’re not currently optimizing your service business, give it some thought.
Good luck with your own forecasting.
Publication date: 02/12/2007
