You might call the current economic condition a bit scrawny, which also calls to mind the shape of economic recoveries. The economy is, no doubt, in steep and rapid decline - it looks like one side of the V. Whether it hits the bottom of the V next month or six months from now is anybody’s guess. However, if I were a betting man, I’d put my money on the upside of the V.
Once we find the bottom, it is conceivable that the economy could stay in the trough for quite a while - a U-shaped bottoming out of the recession. Many economists, and journalists who report on what the economists are saying, are predicting the U. Unfortunately, these people often shape the opinions of John Q. Public. All it takes is one cow to head to the barn at the end of the day, and hundreds will follow. It is the herd mentality.
During 22 years in this industry, I’ve lived through a few recessions, and seen the recoveries. In my opinion, HVACR always seems to lag the general economic indicators by 12 to 18 months. Normally, I would expect it to be the same with this recessionary dip.
Other sectors began feeling the downturn many months ago. From what I gathered in early fall 2008, and from conversations at the recent AHR Expo in Chicago, most HVACR businesses were cranking right along until about 60 days ago.
Today, there is a tremendous backlog of commercial business that has been put on hold. It will stay on hold until owners determine they are confident enough in the economy to begin building. Commercial will come back first, then residential will follow.
When the backlog gets unjammed, Katy bar the door! The HVACR industry will come back with a steep surge. Therefore, as you might say, I’m diggin’ on the V.
POLLYANNAYou may write this off as Pollyanna-style optimism. However, here is why I suggest that the period of recovery will be different than the norm for the HVACR industry. The backlog of commercial work is so large that the HVACR bottom of this recession can’t be very long in duration. This was pent-up demand late last year. The building need had already been established.
What slowed things down? Money. Banks stopped lending money. Everybody got scared. Thus, a commercial building slowdown ensued for this industry’s major contractors.
Here is what has to happen in order to accelerate HVAC projects, and therefore accelerate the bottom of the HVACR portion of this recession: the banking industry must loosen the purse-strings. Why will this happen? The new Obama administration has a lot riding on its first 180 days in office. The banking fiasco will end one way or another. I firmly believe the aftermath will include banks that actually lend money once again. When the money starts to flow, businesses will start expanding rather than contracting. Owners will proceed with previous planned building projects. And, as mentioned earlier, there is a huge pent-up demand.
We may not have found the bottom yet, but I’m looking forward to it. The sooner it gets here, the sooner the upswing can begin.
Murphy’s Law:Smile. It will make people wonder what you’ve been up to.