Fenestration Is Poised for Growth, But When?

Consumer optimism may be the biggest barrier to the growth of the fenestration industry, according to Chris Beard during the National Glass Association’s latest Thirsty Thursday webinar on July 11. Beard, who is director of building products research at John Burns Research and Consulting, reviewed the results of the first quarter of 2024 Window & Door Market Survey, which is an exclusive partnerships between Window + Door and JBREC.

Economic conditions

Understanding the larger economy is important to understanding the fenestration industry. The economy is normalizing but remains strong, bolstered by surging asset prices and strong immigration. Consumer spending is also rising, stock prices continue to rise and the unemployment rate is at 4.1%. Most economists anticipate rate cuts later this year. Expectations grow for rate cuts in September and possibly again in December.

Homeowners continue to have significant equity in their homes; there’s been little depreciation of home values and homeowners continue to view their homes as investments. Despite all of this, consumer sentiment is low compared to pre-COVID. “We think this is the biggest barrier to a significant turnaround in big-ticket remodeling,” says Beard.

Building conditions

In JBREC’s latest builder survey, it found that builders continue to register new home sales higher than the pre-COVID years of 2012-2019. In fact, builders averaged 3.5 single-family starts per community in June, which although flat year-over-year is 21% above the 2.9 June average from 2012-2019.

The firm’s building material dealer survey shows orders falling -1% year-over-year in June as dealers reported weakness from builder customers. The residential architect and design survey revealed half of custom residential architects and 67% of production designers are trying to lower the finish quality to save on costs. Production builders cite doors and windows as the second-most product category for trade-downs; custom architects have it as their fifth.

Conversely, professional remodelers indicate windows are the product category most-often affected by trade-ups.

Fenestration conditions

The Window & Door Market Survey yielded four key takeaways.

1. Improved revenue outlook.
2. Hiring plans to support growth.
3. Easier to find and retain talent.
4. Benign material and labor inflation.

A bit more than half (58%) reported year-over-year volumes declining in 1Q24. It’s important to realize, however, that the industry was still working through backlogs in 4Q23, so this decreased volume is no surprise. Revenue also declined by -1.1% YOY, which was ahead of the -2.7% expected decline.

Material and labor costs are coming down, consistent with the improved supply chains and loosening labor market. A full 57% of manufactures reported no extended material lead times, which leads to improved cycle times. Beard noted this indicates that manufacturers are navigating the transportation issues well.

Typical seasonality expectations are driving 68% of companies to predict higher revenue in the second quarter and most expect full-year revenue in 2024 to exceed 2023’s by 5.5%. Beard thinks this figure is more related to price (63% are raising or will raise prices in 2024) rather than volume increases.

Nearly all—92%—are adding to their workforce or keeping it static. Slightly more than half anticipate expanding their sales and marketing teams, which reflects a growing focus on creating brand loyalty.

Participate in the next quarterly survey.

Takeaways

1. The macro economy is cooling, as the Fed intended.
2. New construction remains strong but is also decelerating
3. The R&R market continues to be pressured by higher costs as consumers defer projects
4. Window and door companies expect revenue growth in 2024 following declines earlier in the year.

View this Thirsty Thursday webinar on demand.