Window & Door welcomes in the new year with its annual Industry Pulse report, taking stock of 2018 and looking to what 2019 may have in store. But charting the trends and keeping tabs on the overall health of the market isn’t just a new years tradition. It serves as a record for our space within the building products industry. While the highly respected economists who share their insights in the economic overview, Economic Insights, can speak to much more encompassing trends and data, Window & Door complements this overall tenor with a focus in on fenestration.
This year’s survey of window and door manufacturers, dealers and suppliers revealed that the industry continues on a slightly upward trajectory. The figures on the next pages illustrate a steady market faring moderately better than the year before. Manufacturers indicate they will invest in added production capacity and plan to launch new products.
Still, even with the Great Recession getting smaller and smaller in the rearview window, fenestration professionals are cautious about the road ahead. Our survey respondents echo the concerns of the greater market, naming labor availability, rising materials costs and keeping up with demand as their biggest challenges for the coming year. On the following pages, you’ll see statistics that speak to these trends as well as commentary from the industry on where we are, where we’re headed and what we need to do to get there as an industry.
Employment Trends
How did your staff levels change in 2018?
More than half of the total respondents to the survey added staff in 2018. Employers used online job boards as their major recruiting method in 2018. Most used major sites like Monster and Indeed, with a negligible percentage opting for trade job boards. Word of mouth was the next most successful method of finding labor, trailed by internal referral programs and recruitment/talent agencies. Job fairs and apprenticeships continue to fade as successful recruiting methods, according to survey respondents.
Hiring in 2019?
Seventy-one percent of respondents plan to hire next year, a significant majority though a slight decrease from last year’s posting of 83 percent. Like 2018, manufacturers again demonstrated the strongest interest in adding staff, with 81 percent planning to hire, followed by dealers at 69 percent and suppliers at 65 percent. Those respondents not adding staff largely attributed the decision to a lack of need due to the company’s current capacity. Seven percent of respondents say they plan to downsize, with the majority citing underperforming workers, as well as capacity issues, lack of management and lack of training resources.
Where Jobs Are Being Added
Respondents planning to add staff reported an interest, across the industry segments, in recruiting sales personnel. Manufacturers understandably showed the most interest in adding to their manufacturing workforce. Dealer respondents interested in hiring said they were looking for installers and delivery personnel for their team. In general, industry segments said they would hire across different departments and positions, including management and marketing.
01. Sales
02. Manufacturing
03. Installation/Delivery
04. Management
05. Marketing
Closing the Labor Gap
“As 2019 approaches, we expect the skilled labor shortage to continue to be an issue due to fast growth in the construction industry and younger generations considering other career options. Marvin is doing their part to close the skilled labor gap and support the industry by investing in numerous programs and partnerships that aid in the development of potential trade workers. Current and past initiatives include developing a pre-apprenticeship program, engaging with local schools by hosting students in our facilities, supporting the mikeroweWORKS Foundation to help enable scholarships for trade education, and being a charter sponsor of Generation Next – a philanthropic effort in partnership with This Old House.” —Kris Hanson, senior manager, group product management, Marvin Windows and Doors
“The smart factory is one of the ways companies are tackling the challenge of finding skilled labor. As companies automate and integrate software packages, they can better tackle the skilled labor shortage facing many domestic producers.” —John Staiano, COO, A+W North America
“We are firm believers in apprenticeship programs to address the skilled labor shortage/skills gap. There is a significant need for closer collaboration between state agencies, community and technical colleges, chambers of commerce and the industry, in order to holistically set up such programs and initiatives.” — Chris Dimou, president and CEO, Roto North America
Sales Trends & Demand
2018 Sales Realities
Industry segments reported healthy growth in 2018, with 41 percent of respondents posting that sales were as projected, while 38 percent said that sales were higher than anticipated. Half of the respondents reporting increased sales attributed the increase to a healthier economy, with over a third of manufacturer respondents also citing new business practices such as new products, dealer consolidation and a regional rebate program. Those who reported a decrease in sales pointed to a plurality of causes, also including the economy, as well as price increases and a lack of staff, among others.
2019 Sales Projections
Survey respondents remain positive about the future this year, with most projecting a moderate increase in sales for 2019. Manufacturers and dealers responded the most optimistically about sales in 2019, with almost 70 percent of these industry segments saying that sales would increase.
Units Shipped in 2018
Units shipped increased in 2018, according to a majority of manufacturer respondents. Fifty percent of respondents from this segment reported a moderate increase, while 14 percent said the amount increased greatly.
Expectations for Units Shipped in 2019
Manufacturers remain optimistic about 2019’s projections, with three quarters saying they expect increases for units shipped. (Statistics at right and above represent manufacturer respondents only.)
Keeping Up with Demand
“Our strategy to keep up with demand in the current labor market is to focus on employee retention by increasing employee engagement, developing the skill sets of our own employees, investing into automatization, and Lean Management practices across the whole enterprise.” —Chris Dimou, president and CEO, Roto North America
“In modern companies, fast, intelligent production lines are networked with state-of-the-art software. All parts are in the right place at the right time. There is no search for material or mountain of paper for every order. The magic word here is integration. Only integrated software with powerful machine interfaces enables these cleverly networked processes, while simultaneously reducing costs.” —John Staiano, COO, A+W North America
“As builders work toward matching heightened expectations, it will be increasingly important to choose reliable, proven products that contribute to those goals. Even though we might see a bit of market turbulence this year, now’s not the time to cut corners. Short-term price benefits can cost you significantly more money later down the line.” —Erin Johnson, director of marketing, Quanex Building Products
Innovating Production
“Although we continue to see a skilled labor shortage across the entire industry, we are also seeing more programs being implemented to encourage more degrees and experience in the trades. While this will be helpful to bridging the skilled labor shortage and skills gap, we are also aware technology may change what exactly our labor needs might look like in the future.” —Rachel McKinnon, director, market intelligence, Marvin Windows and Doors
“The technology trends that we saw at GlassBuild America and Fensterbau in 2018 will increasingly be implemented in the industry. This means that we will experience increased digitization and automated processes. These innovations are important because they bring concrete, measurable benefits to companies, which means companies save time and money. Additionally, increased process reliability due to increasing digitalization contributes to product quality and helps to further shorten delivery times.” —John Staiano, COO, A+W North America
“One of the key innovations that help growth and efficiency is the application of smart technologies, which helps manufacturers to better design, measure and control all aspects of the manufacturing process.” —Chris Dimou, president and CEO, Roto North America
“Automation is continuing to revolutionize how we make windows and doors, and it isn’t slowing down. The biggest equipment makers continue to introduce new functionality that is helping manufacturers become more and more efficient. For manufacturers making the investment in automation, it’s also important to remember to seek out products and solutions that are complementary to those new solutions.” —Larry Johnson, vice president of IG sales, Quanex Building Products
Tariffs & Trade Policy
This last year saw major changes to trade policy, especially the metal tariffs placed on aluminum and steel. In light of these new market factors, industry respondents seem evenly split across segments, with exactly half reporting negative effects to business due to these changes, and 38 percent reporting that the policies had no effect. A majority of respondents—60 percent—said they did not plan to alter product offerings in 2019 due to the tariffs. While the industry expects product lines to hold steady, a 93 percent majority of respondents said they anticipated increased material costs in 2019. Across the board, respondents plan to raise prices in order to offset the effects of higher material costs.
Tackling Trade and Transportation
“The effect of the current trade climate on business for manufacturers and suppliers will be seen in rising costs for imports, which is expected to impact businesses and consumers alike, although in 2018 consumer confidence has continued to climb.” —Chris Dimou, president and CEO, Roto North America
“Rising material costs along with the rising costs of labor and regulations will continue to negatively impact affordability and growth in the industry. As these costs continue to rise, homeowners will continue to look for more affordable options available to them.” —Rachel McKinnon, director, market intelligence, Marvin Windows and Doors
“The simple fact is that the current trade climate is causing uncertainty—and no one likes uncertainty. Raw materials that builders depend on are fluctuating in price, and importers and supply chain experts need to be staying on their toes. We do know that 2019 brings an increase in tariffs from 10 percent to 25 percent on Chinese imports, which is likely to cause some more heartburn. We’ll be keeping a close watch on the situation as 2019 progresses.” —Ric Jackson, director of government relations, Quanex Building Products
“It’s really becoming more of a science to work with the transportation industry [regarding freight]. It’s a very competitive market for truckdrivers—their hours have been limited and then, so has their income potential. Now, with more and more regulations on the trucking industry, it’s going to be a tough issue for the foreseeable future. That’s why Veka is working with a certified logistics provider to supplement our own planning process.” —Joe Peilert, CEO, Veka Inc.
Product Trends
Which products were most in demand in 2018?
Vinyl windows remained the most in-demand product, according to both manufacturers and dealers. By segment, dealers reported high demand for aluminum windows and wood windows, while manufacturers reported modest demand for traditional patio doors. (Represents manufacturer and dealer respondents only.)
Total Manufacturers Dealers
1
Vinyl Windows
Vinyl Windows
Vinyl Windows
2
Fiberglass Entry Doors
Multi-Panel Doors
Aluminum Windows
3
Aluminum Windows
Energy Star-Rated Products
Fiberglass Entry Doors
4
Multi-Panel Doors
Traditional Patio Doors
Wood Windows
5
Energy Star-Rated Products
Fiberglass Entry Doors
Energy Star-Rated Products
Product Launches
Across industry segments, 62 percent of respondents added products in 2018. By segment, only half of dealers added new products, while over 60 percent of manufacturer and supplier segments had new offerings in 2018. More than 50 percent of respondents plan to launch new products in the coming year. Company reporting suggests a nominally larger market share for window/door components, which was selected as the number one product category to be launched in 2019, as well as the number one product that was added in 2018, largely due to the supplier market segment.
Over 80 percent of manufacturers said they would be adding production capacity for 2019. Combined with potential gains in units shipped, this could again provide a healthy market for suppliers in 2019.
01. Window/Door Components
02. Other
03. Multi-Panel Doors
04. Vinyl Windows
05. Aluminum Windows
Opportunity in Remodel/Replace Market
“We expect that the renovation market will represent that biggest area of opportunity for window and door makers this year, for a few reasons. First, we’re expecting a slowdown on new builds. Second, as we witness rising interest rates, it’s reasonable to expect that current homeowners already locked into low interest mortgages won’t be looking to move. And if they’re staying put, they may very well be looking to upgrade. The median age of the U.S. housing stock today is about 37 years old, and we know that most homeowners tend to take on major remodeling projects (including window replacement) when homes reach 20 years old. For replacement and remodeling suppliers, the outlook for 2019 should be promising.” —Anthony Wright, director, strategic marketing & analysis, Quanex Building Products
Product Trends
“More and more studies are proving the benefits of natural light on health and wellness, plus it’s becoming more widely known that most people spend a majority of their time indoors, away from the natural environment. Due to these two factors, people want to optimize natural light throughout their home, work environment and the other places they spend a majority of their time, so windows and doors continue to get larger in order to control and capture where light plays in a space. As part of this trend, we’re also noticing a demand for large window walls, or many windows that are mulled together, to flood the space with natural light.” —Kris Hanson, senior manager, group product management, Marvin Windows and Doors
“Market adoption of available technological advances will improve the energy performance of windows, which will lead to economic and energy saving benefits.” —Chris Dimou, president and CEO, Roto North America
“One thing we’re seeing is a continuous push towards efficient, sustainable new construction. Even if some of the federal mandates and/or incentives may have temporarily faded from view, codes are getting stricter (for instance, ASHRAE 90.1 comes to mind), buildings that operate efficiently are now an expectation on a broad scale. What’s more, there’s an increasing expectation among homeowners and renters for not just efficiency, but enhanced occupancy comfort at every level.” —Erin Johnson, director of marketing, Quanex Building Products
Economic Insights
By Tom Gresham for Window & Door magazine
As the United States continues to ride one of the longest economic expansions in its history, economists are weighing every new report and measurement to gauge how much longer the country’s gross domestic product growth will continue and to forecast the potential impact if another recession rears its head. Integral to the economy’s fortunes is the housing market, which proved to be a source of trouble during the recession that arrived in 2008. Today, economists closely follow the housing market and its role in the larger economic climate.
The prospect of a recession
Most economists project the U.S. economy to grow at a solid pace through the end of 2019, but differ on whether a recession likely awaits beyond that point. Mark Boud, chief economist and senior vice president, MetroStudy | Hanley Wood, forecasts a recession could begin as early as late 2020. Meanwhile, Robert Dietz, chief economist and senior vice president for the National Association of Home Builders, says a recession is “more likely than not” to hit before the end of 2021.
Dietz points to labor scarcity as a chief culprit in potentially causing “the economy to overheat, thereby producing inflation.” Dietz says long-awaited wage growth is expected as businesses compete in a tight labor market to secure talented workers. However, he says wage growth due to businesses competing against each other for workers—rather than because productivity is improving—tends to lead to inflation, which leads to the Federal Reserve raising interest rates.
Dietz believes higher interest rates will slow growth, including making home-buying more expensive, and eventually lead to a recession. Dietz says any elevation in U.S. trade wars could bring a recession faster.
As it is, Boud says the new trade agreement with Canada and Mexico is expected to move more manufacturing and production into the U.S. It can also contribute to consumer prices continuing to climb because of the added expense to manufacture some products in the U.S., such as automobiles. Tariffs on Chinese imports also will increase costs for consumers, he says.
“Given the fact that the economy is made up of 70 percent consumer spending, we’re going to see inflation, which will slow economic growth, and that’s a concern,” Boud says.
Boud sees a reasonably strong year in 2019—though with growth slowing from 2018—but too many factors point to the economy beginning to limp beyond that. The housing market has some particular challenges, he says.
“Cost inflation is a big deal and tight labor is a big deal,” says Boud. “Immigration policy is hurting labor, especially construction labor, and that’s a big deal. There are a lot of things that are going against the residential housing industry and all of the building product manufacturers, and it hasn’t come home to roost yet. My fear is that it eventually does.”
In addition, Boud says the recent tax cut, when combined with “wasteful” federal spending, is building the deficit in a time of a growing economy, essentially “borrowing growth from the next cycle.”
“I don’t think things fall apart because of these [issues], but I think they are long-term drags on the economy that will take a while to play out,” he says.
Paul Bishop, vice president of research for the National Association of Realtors, nar.realtor, is more sanguine about the prospect of a recession. He says the current strength of consumer confidence and the GDP indicate that the risk of a recession is “pretty low” in the intermediate term. “There’s nothing that we see on the horizon that necessarily suggests there’s going to be a recession in 2019 or 2020,” Bishop says. “Of course, it’s always hard to predict the turning points in the economy.”
Nino Sitchinava, principal economist for Houzz, says economists have predicted the arrival of a recession in recent years, but one is yet to come. “Given the prolonged and unusual nature of the recovery from the last recession, it is hard to say when exactly it will happen,” Sitchinava said. “A potentially more relevant question is less about the timing, and more about the causes of the likely slowdown and its impact on the housing and the home improvement market.”
Inside the housing market
Prices in the housing market continue to grow at a solid clip, while sales volume has dipped 4.1 percent in 2018, according to NAR. Home prices rose 4.2 percent in September 2018 when compared to September 2017, NAR reports. Bishop says these statistics represent a healthy growth in prices and a more moderate pace than earlier in 2018, when prices were spiking in “a more frenetic” market.
The NAHB/Wells Fargo Housing Opportunity Index measures housing affordability in 237 metro areas. The index peaked in 2012, Dietz says, when 78 percent of new and existing home sales were affordable for the typical family.
The index dropped to 57 percent for the second quarter of 2018, marking a 10-year low.
The chief cause for the decrease in affordability is a lack of inventory, leading to higher prices, Dietz says. Inventories are beginning to rise in response, he says, but rising interest rates are keeping housing affordability, demand and sales volumes subdued. The average commitment rate for a 30-year, conventional, fixed-rate mortgage was 4.63 percent in September, as compared to an average commitment rate of 3.99 percent for all of 2017, according to NAR.
Bishop says current housing price growth represents a stable pace and one that offers helpful predictability for both buyers and sellers. “Even if growth is a little slower than it was a few months ago, it’s not overall a bad thing because prices need to be in line with what people are earning to maintain that affordability,” Bishop says.
For the near future, Bishop says, ideally, “the housing market should come to some kind of balance again where home prices are rising but not at a pace that causes affordability to be as much of a challenge, even in an environment where interest rates are rising.”
Renovation, construction and ‘a soft landing’
Sitchinava points to overall home equity levels at record highs, unemployment at record lows, and signs of wage growth as positive signs for the home improvement field. She notes marked differences in today’s housing climate compared to the mid-2000s. In particular, today’s housing market deceleration is not traced to overbuilding and overborrowing, as it was in the lead-up to the Great Recession, Sitchinava says.
“In fact, the opposite holds true today. With tight housing inventories and high costs of new construction today, homeowners have become increasingly less mobile and more likely to perceive their home as a long-term investment,” Sitchinava says. “Furthermore, today's homeowners are mostly older, established generations with significant purchasing power. Finally, half of homes today are over 37 years of age, increasingly requiring improvement and repair. These three factors are important pillars of stability for the home improvement industry. In other words, while a recession is likely in an overheating economy, the home improvement industry should fare relatively well given the market fundamentals.”
Boud, Bishop and Dietz generally agree. Boud says current homeowners will be reluctant to move and take on higher mortgage rates as interest rates continue to rise, but “that doesn’t necessarily mean the demand for windows and doors goes down—it just gets converted to renovation as opposed to new home purchases.”
Boud says he believes strength in the house renovation market, including for windows and doors, will allow for a softer landing for the overall housing market if a recession strikes. “A recession has ramifications for slower global growth or contraction for windows and doors, but it’s not nearly as serious as the past cycle,” he says.
Regarding new house construction, Dietz says the market could differ sharply between different regional areas in the coming years, though NAHB has modest growth forecast to continue overall for single-family housing. “I think it’s really going to depend market to market,” he says. “Where the population is growing, being in the new construction sector is going to be worthwhile.”
One demographic development to consider, he continues, is that millennials are aging into purchasing homes, and consumer preference surveys show they are seeking single-family homes and a suburban aesthetic, but with walkable neighborhoods. “That’s why one of the sub-markets that we’re particularly bullish on over the next five to 10 years is townhouse construction,” says Dietz.
The bottom line
For those in the window and door industry, a stable housing market can be paramount to a stable business. Fortunately, economists see positive signs that opportunities should remain for those in the fenestration market even if the overall economy falters.
Weighing In | The factors that play into the forecast
One of the challenges of forecasting the economy’s path, and that of the housing market, is the host of factors that could knock it off its expected route.
Labor
Paul Bishop, vice president of research for NAR, says one of the ongoing factors to watch in the economy, particularly in housing construction, is the scarcity of labor. “A shortage of skilled labor is currently holding back a lot of builders in their ability to build as many homes as they would like,” Bishop says.
Robert Dietz, chief economist and senior vice president for the NAHB, says a striking statistic to note for the window and door field is that labor productivity in the U.S. construction industry has been essentially flat in the past 25 years while overall worker productivity has grown 30 percent. In light of the labor shortage, he says, “we’re going to have to find more productive ways of using workers.” For those in the window and door industry, Dietz sees a potential opportunity.
“If you can go to a builder and say, ‘I’ve got a more expensive product here, but I can quantify exactly how much labor installation time it will save you,’ then that product is going to sell,” Dietz says.
Tax reform, trade policy and interest rates
Other factors to watch closely include the impact of tax reform, the evolution of trade policy and the Federal Reserve’s decisions on whether to increase interest rates.
For instance, Dietz says the recent tax cuts could encourage businesses to invest more, potentially sparking productivity gains and helping keep inflation in line. However, Bishop notes the tax reform package also reduces the value of the mortgage interest and property tax deductions as tax incentives for homeownership, possibly playing a role in suppressing house sales.
Finally, Mark Boud, chief economist and senior vice president, MetroStudy | Hanley Wood, recommends keeping an eye on the treasury yield spread, which measures the difference between the yields on the two- and 10-year U.S. Treasury notes. “When that yield goes negative, it has been an uncanny forecast for a recession, and it’s just about to go negative,” Boud says.
