State of the Industry at Mid-Year

Rich Walker
July 1, 2010
COLUMN : Industry Watch | Markets & Trends

Although admittedly viewed through a rather hazy crystal ball, the national economy and the future of our industry can be projected with cautious optimism, so long as we are prepared to accept a “two steps forward, one step back” type of progress.

At the midpoint of 2010, a look at the dashboard is encouraging:

  • After shrinking 2.4 percent in 2009 (the most since 1946), gross domestic product logged 3 percent growth during the first three months of 2010. A 3.7 percent annualized increase was projected for the second quarter of this year.
  • Inflation is under control. A modest 1.7 percent rise in the Consumer Price Index is forecast for all of 2010.
  • Interest rates remain low, although most economists expect the Fed to begin lifting key interest rates in the fourth quarter.
  • New residential construction is up. At end of May, the National Association of Home Builders reported April single family housing starts up 5.8 percent to the highest level since October 2008. Yet this was likely boosted artificially by the $8,000 tax credit, which expired at the end of that month–a spike deemed likely to fade. However, experts hope that the positive trends will prevent sales from falling significantly. IHS Global Insight projects that housing starts will nearly triple by 2012, to about 1.6 million units annually, and total home sales will increase 29 percent, to nearly 6.5 million.
  • Green construction trends should reinforce this. Yahoo! Finance predicted in May that by 2012, green homes will represent as much as 20 percent of the new-home market, up sharply from just 2 percent in 2005.
  • The remodeling and retrofit segment is poised for growth. The latest Leading Indicator of Remodeling Activity from the Joint Center for Housing Studies at Harvard found that Americans plan to increase spending on home improvements by nearly 5 percent this year, reflecting a tendency for cautious homeowners to “fix up rather than trade up.” This is reinforced by incentives, such as the increase in individual tax credits for energy-efficient improvements from 10 percent to 30 percent of cost for 2009 and 2010. The impending Home Star program will likely add additional momentum for retrofits.

Window Markets Respond
According to the 2009-2010 AAMA/WDMA U.S. Industry Statistical Review and Forecast, demand for window and door products appears to bottom out in 2009, after falling almost 45 percent during the five-year decline. Windows for new construction fell 67 percent, while those intended for remodeling and replacement held their own somewhat better, declining by 24.4 percent.

The study projects the demand for residential windows to rebound in 2010 as new construction activity begins to take hold. A tepid recovery is forecast in 2010 (a 10.5 percent increase overall, comprised of 33 percent for new construction, but a virtually flat 1 percent for replacement products) followed by gains of 21 percent, 45 percent and eight percent, respectively, in 2011. Unfortunately, there is no indication of a return to 2005 “bubble” levels until 2014 or later.

Wild Cards
While all of the above lend credence to a position of optimism, there are a number of potentially significant situations that should temper our hope for recovery with a dose of realism. These include the national debt, projected to be $19.6 trillion by 2015–possibly exceeding the GDP, the so-far “jobless recovery” (the National Association for Business Economics expects no drop in unemployment below 9 percent for another year, inching down only to 8.4 percent by the end of 2011) and volatile energy prices (subject to the impacts of the Gulf oil spill, pending “cap-and-trade” legislation and conflict in the Middle East).

Barring major negative events, the slump that has beset the fenestration industry appears to have bottomed out and, however slowly, uptrends are starting to take hold. We are all doubly advised to be vigilant, agile and creative with business plans, manufacturing processes, technologies and marketing strategies if we are to nurture and leverage the re-emergence of a vital and growing industry.
 

Rich Walker is president and CEO of the American Architectural Manufacturers Association, 847/303-5664, rwalker@aamanet.org.