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TRANSCRIPT
Prepared by:
ITR Economics
Manchester, New Hampshire
Reproduction of the material contained in this issue of T.R.E.N.D.S. in whole or part is forbidden without written permission granted by
Heating, Air-conditioning & Refrigeration Distributors International.
October 2016
Southeastern Region
Alabama, Florida, Georgia, Mississippi, North Carolina,
South Carolina, Tennessee, Virginia
Reproduction of the material contained in this issue of T.R.E.N.D.S. in whole or part is forbidden without written permission granted by Heating, Air-conditioning & Refrigeration Distributors International.
Reproduction of the material contained in this issue of T.R.E.N.D.S. in whole or part is forbidden without written permission granted by Heating, Air-conditioning & Refrigeration Distributors International.
Thank you to the following HARDI Sustaining Members whose support helps make this report possible:
Alltemp Products Co. LTD
Arzel Zoning Technology, Inc.
C&D Valve
CPS Products, Inc.
Centrotherm Eco Systems
CertainTeed Corporation
Columbus/TPI HVAC Division
Continental Industries, Inc.
Cooper-Atkins, Corp.
E.V. Dunbar Co.
Embraco
EWC Controls, Inc.
Golden Refrigerant
Haier America
Harris Products Group
Heat Transfer Products Group
Holyoke Fittings Inc.
International Comfort Products
JMF Company
Khauf Insulation GmbH
Martin Walshin, Inc.
Metal-Fab, Inc.
Mortex Products, INC.
National Compressor Exchange
Owens Corning
Panasonic Eco Products Division
Rawal Devices
Reflectix, Inc.
Research Products Corporation
RSES
Sauermann NA Corp
Seal-Tite, LLC
Site-Seeker, LLC
Snappy
Superior Radiant Products, Inc.
TACO, INC.
Trion
Ventamatic, Ltd.
Wells Fargo-CDF
White-Rodgers
Williams Comfort Products
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Table of Contents
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Economic Overview………………………………………………………………………………………………………………………….. 1
National Mortgage Rates……………...………………………………………………………………………………………………….. 2
National Commercial Lending Rates…………..…………………………………………………………………………………….. 3
National Construction Inflationary Pressures.….………………………………………………………………………………… 4
National General Inflationary Pressures………………………………...………………………………………………………….. 5
Steel Prices……………………………………………………………………………………………………………………………………….. 6
Copper Prices……………………………………………………………………………………………………………………………………. 7
National Home Improvement Construction……………………………………………………………………………………….. 8
National Consumer Activity……………………………………………………………………………………………………………….. 9
Regional Housing Construction…………………………………………………..…………………………………………………….. 11
Housing Permits by State…………………………………………………………………………………………………………………... 12
Median Home Prices by State……………………………………………………………………………………………………………. 13
Regional Housing Construction Forecast……………………………..………………….…………………………………………. 14
Click Here for a Brief Explanation of How to Read the Report
Table of Contents
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Regional Nonresidential Construction………………………….……………...…………………………………………………... 15
Nonresidential Construction by State by Value………………………..……………………....…………………………….…. 16
Regional Nonresidential Construction Forecast……………………….………..……………………………………….……… 17
Cooling & Heating Demand by State………….………………………………………………………………………………………. 18
Consumer Credit Availability…………………………………………………………………………………………………………….. 19
HVAC Factory Shipments ……………………………………………………………..…………………………………………………… 20
Appendix………………………………………………………………………………………………………………………………………….. 21
Management Objectives……………………………………………………………………………………………………………………. 22
Click Here for a Brief Explanation of How to Read the Report
Reproduction of the material contained in this issue of T.R.E.N.D.S. in whole or part is forbidden without written permission granted by Heating, Air-conditioning & Refrigeration Distributors International.
When reading the news about the struggling US industrial sector, it is
easy to become lost in pessimism. However, the upcoming year will be a
better year than 2016, as the economic fundamentals and leading
indicators point to expanding US business-to-business activity, rising
global demand, and a strong US consumer. Average US Industrial
Production for the past 12 months, down 1.3% from one year ago, is
hampered by contraction in the Mining and Utilities components.
However, the quarterly growth rates for US Mining Production and US
Electric and Gas Utilities Production, the two laggards of US Industrial
Production, are rising. Recovery in these components in the coming
months will support an imminent transition to a recovery trend within US
Industrial Production. This is corroborated by the general rise in the rate-
of-change for the US Total Industry Utilization Rate. We expect a rising
trend in annual Industrial Production to take hold by late 2016 and
subsequently rise through 2018, as the headwinds facing the commodity-
dependent segments of the US economy fade, allowing for positive
consumer trends to drive growth.
Consumers are supporting US Real GDP growth while the industrial side
of the economy wanes. Annual Personal Consumption Expenditures
reached a record $12.6 trillion, driven by rising wages that outpace
inflation and a record-high level of Private Sector Employment. Rising
incomes, rising employment, and low interest rates are contributing to
the growth in consumer spending; US Total Retail Sales Excluding Gas
Stations (deflated) are up 3.4% on a year-over-year basis. Expect
consumer spending to pick up in 2017 as the macroeconomy grows.
Private Nonresidential Construction has been growing at a slower pace
since March and slowing growth will persist into late 2017. The rate of
growth in US Warehouse Buildings Construction, which is up 17.4%, will
begin to slow by the end of 2016. Despite the slowing rate of growth, this
market will provide growth opportunities for sales, as consumers
increasingly shift purchases to online stores, requiring new distribution
centers to be built. US Total Manufacturing Production is in a slower
growth trend, which is hindering growth in US Manufacturing
Construction.
The upcoming recoveries in US Industrial Production and business-to-
business activity will support growth in 2017 in many segments that
HARDI members operate within, benefitting sales in 2017. Plan for
increasing economic activity next year by hiring, training, and retaining
employees now in preparation for increasing demand. Also, consider
undertaking capital expenditures at today’s low interest rates, if your
balance sheet permits, to prepare for growth next year. Next year is
gearing up to be a promising year for the economy and for sales growth
opportunities; do not get caught on your heels when demand begins to
pick up. Be proactive in your planning and budgeting to be there for your
customers and fulfill orders both on time and with top quality.
Economic Overview
80
85
90
95
100
105
110
115
120
80
85
90
95
100
105
110
115
120
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
US Industrial Production Index Trend
1
Industry
Summary
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National Mortgage Rates
Rate: 3.46% for 30-Year Fixed Phase: A Month-over-Month: -11.1%
The average National Conventional 30-year Mortgage
Rates closed September at 3.46%. While this marks a 43
basis-point decline from September 2015, 30-year Rates
began settling higher recently after bottoming out at
3.44% in July. The tentative upward movement in Rates
is barely perceptible at this point, but could gain steam
moving through the fourth quarter. In the minutes from
the latest Federal Reserve meeting in September, Fed
officials communicated that they expect to raise rates
again “relatively soon”. Ambiguous by normal standards,
but for the Federal Reserve, the minutes reflect a
stronger messaging in favor of a rate increase than we
have heard in recent months. It is unlikely that the Fed
will raise rates on the eve of the presidential election, so
December becomes the most likely month to get the
next rate increase. Looking to 2017, as the
macroeconomy will be strengthens, leaving the Fed with
less to justify holding rates at this level next year.
0
1
2
3
4
5
6
7
8
0
1
2
3
4
5
6
7
8
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
Mortgage Rate Trend
Monthly Data
-30
-20
-10
0
10
20
30
40
-30
-20
-10
0
10
20
30
40
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
1/12 Growth Rate
Month-over-Month Business Cycle
2
Industry
Summary
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National Commercial Lending Rates
Rate: 0.75% for 90-Day Commercial Paper Phase: C Year-over-Year: 167.1%
US Short-Term Interest Rates ticked up to 0.75% in
September, up 47 basis points from the September
2015 level (0.28%). Short-Term Rates also rose from
0.55% at the end of the second quarter, gaining
momentum despite the Federal Reserve not hiking
interest rates in recent months.
The latest messaging from the Federal Reserve’s
September meeting signaled that Fed officials expect to
raise rates again “relatively soon”. The central bank is
unlikely to hike rates just before the election, given the
potential for immediate stock market and currency
fluctuations. This makes December the most likely
timing of the next increase. Looking beyond 2016 and
factoring in ITR’s expectations for an overall accelerating
economy in 2017, rates are poised to rise at a quicker
pace next year. Evaluate your long-term goals and, if the
time is right for your business, use this opportunity to
secure capital at a favorable rate before capital costs
move higher next year.
0
1
2
3
4
5
6
0
1
2
3
4
5
6
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
Short-Term Interest Rate Trend
Monthly Data
-160
-80
0
80
160
240
320
-160
-80
0
80
160
240
320
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
1/12 Growth Rate
Year-over-Year Business Cycle
3
Industry
Summary
Reproduction of the material contained in this issue of T.R.E.N.D.S. in whole or part is forbidden without written permission granted by Heating, Air-conditioning & Refrigeration Distributors International.
National Construction Inflationary Pressures
Monthly Index: 230.2 Phase: B Year-over-Year: 1.0%
The oil glut that drove oil and raw material prices down
over the last year provided a period of respite to
builders in the form of lower material and fuel costs,
but that period has come to an end. The US Materials &
Components for Construction Producer Price Index
transitioned to Phase B, Accelerating Growth, during
the last quarter. The Index closed September up 1.1%
versus September 2015, as Material and Component
Prices are accelerating versus their year-prior levels.
Metal Prices are on a notable upswing. Aluminum broke
above the year-ago level during the third quarter. US
Steel Futures closed September up 2.5% versus last year
and Galvanized Steel costs 30.2% more per ton than it
did in September of 2015. Copper remains reluctant to
turn, with Futures Prices down 6.1% versus the 2015
level. Fuel Prices are rallying; Oil Futures closed
September at $48.24 (up 7.0%) and Natural Gas Futures
rose to $2.91 (up 15.1%).
160
180
200
220
240
160
180
200
220
240
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
Construction Material Price Index Trend
Monthly Data
-8
-6
-4
-2
0
2
4
6
8
10
12
-8
-6
-4
-2
0
2
4
6
8
10
12
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
1/12 Growth Rate
Year-over-Year Business Cycle
4
Industry
Summary
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National General Inflationary Pressures
Monthly Index: 240.9 Phase: B Year-over-Year: 1.1%
Inflationary pressures picked up in August, rising 1.1%
above the August 2015 level. Deflationary prices in
Energy and easing inflationary pressure for Food items
are being outpaced by rising Medical prices. We expect
the rise in business-to-business activity and expansion
in the US economy in 2017 will support rise in
commodity prices in 2017, which will contribute to
inflationary pressures through 2018.
Health Insurance Prices rose 9.1% from the year-ago
level and consumers are spending 4.9% more on
Medical Care than in August 2015. Evaluate the need to
offset the increased cost of healthcare on your bottom
line against your interest in attracting and retaining top
talent. High-caliber employees are demanding benefits
packages that serve to shield them from risk of future
inflation in this segment.
175
200
225
250
175
200
225
250
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
Consumer Price Index Trend
Monthly Data
-3
-2
-1
0
1
2
3
4
5
6
-3
-2
-1
0
1
2
3
4
5
6
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
1/12 Growth Rate
Year-over-Year Business Cycle
5
Industry
Summary
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Steel Prices
Quarterly Trend: $855.9 per ton Phase: C Year-over-Year: 32.8%
Galvanized Steel Prices averaged $855.9/ton in the
third quarter, up 32.8% versus Prices in the third
quarter of 2015. However, Prices settled down to
$817.5/ton at the end of September. Prices have been
rising since the onset of 2016, but dipped in the last
three months since tentatively peaking in June 2016.
US Steel Futures Commodity Prices closed September
at $205.00 per gross ton. Average Prices in the three
months through September fell to $210.00 per gross
ton, 1.9% below the same quarter last year. We expect
Steel Prices to decline further through the end of 2016.
Accelerating industrial demand in 2017, both in the US
and China, will then drive a firmer rising trend next
year. Pass on savings from low input costs in order to
attract new customers and capture market share while
Prices are lower this year.
0
200
400
600
800
1000
1200
0
200
400
600
800
1000
1200
'10 '11 '12 '13 '14 '15 '16 '17
Galvanized Steel Price Trend
3-Month Moving Average
-40
-20
0
20
40
60
80
-40
-20
0
20
40
60
80
'10 '11 '12 '13 '14 '15 '16 '17
3/12 Growth Rate
Year-over-Year Business Cycle
6
Industry
Summary
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Copper Prices
Quarterly Trend: $2.16 per pound Phase: A Year-over-Year: -7.9%
Copper Prices averaged $2.16 per pound in the third
quarter, down 7.9% compared to the third quarter
last year. Prices have been averaging between $2.10
and $2.20 per pound for most of 2016, but the rates-
of-change are moving in a positive direction since
bottoming out in late 2015. We expect upside
pressure to build in Copper Prices throughout the
fourth quarter, averaging $2.27 per pound in the
fourth quarter. Prices will continue to gain
momentum into the second half of 2017. While most
metal commodities (Aluminum, Galvanized Steel,
Lead, Tin, Zinc) have all surpassed their year-ago price
levels, Copper has been the slowest to turn.
Accelerating industrial activity next year, along with
growth in residential and nonresidential construction,
will drive year-over-year price growth for copper and
copper products .
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
Copper Price Trend
3-Month Moving Average
-100
-50
0
50
100
150
-100
-50
0
50
100
150
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
3/12 Growth Rate
Year-over-Year Business Cycle
7
Industry
Summary
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Remodeling activity across the US is cooling. The
National Remodeling Market Index averaged 55.2 over
the last 12 months, down 5.7% versus the 2015 level.
However, the diffusion Index is holding above the 50.0
threshold, indicating overall growth on a quarter-to-
quarter basis. The second quarter reading for the
Remodeling Market Index came to 54.0, down from
54.5 in the first quarter and 8.9% below the second
quarter of 2015.
Existing Home Sales, which lead the Remodeling Market
Index by three months, are in a slowing trend as well.
Sales in the last 12 months are up 3.4% compared to
the same period last year, but Sales in the most recent
three months are up a more modest 0.6%. However,
with record employment levels, accelerating New
Home Sales, and quickening wage gains, we expect this
decelerating trend to be short-lived. Accelerating Sales
in 2017 will help drive remodeling activity higher.
National Remodeling Market Index
Annual Trend: 55.2 Phase: D Year-over-Year: -5.7%
-40
-30
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-10
0
10
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30
40
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10
20
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'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
12/12 Growth Rate
Year-over-Year Business Cycle
0
10
20
30
40
50
60
70
80
0
10
20
30
40
50
60
70
80
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
National Remodeling Market Index
12-Month Moving Average
8
Industry
Summary
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National Consumer Activity
Annual Trend: $2.275 trillion Phase: C Year-over-Year: 1.9%
US Total Retail Sales (deflated) during the past 12
months are up 1.9% from the year-ago level, totaling
$2.275 trillion. Retail Sales in the past three months are
up 1.6%. We expect consumer activity to grow at a
slower rate through year end before accelerating by
early 2017 and continuing to gain momentum
throughout the year.
US Building Materials and Supplies Dealers Retail Sales
during the last 12 months rose 7.1% from the same
period one year ago, but Sales in the most recent three
months are up a less robust 6.0%. As overall consumer
spending and spending on Building Materials and
Supplies slows, HARDI members will likely feel slower
growth in the final months of 2016 as well. However,
this will be short-lived, with acceleration in total
consumer activity and residential construction
occurring by early 2017.
-12
-10
-8
-6
-4
-2
0
2
4
6
-12
-10
-8
-6
-4
-2
0
2
4
6
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
12/12 Growth Rate
Year-over-Year Business Cycle
1.8
1.9
2.0
2.1
2.2
2.3
2.4
1.8
1.9
2.0
2.1
2.2
2.3
2.4
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
Retail Sales Trend
12-Month Moving Total
9
EXCLUSIVELY FOR PREMIER MEMBERS,
BENCHMARKING SUBSCRIBERS, AND MONTHLY SALES
SURVEY PARTICIPANTS
This portion of the report focuses on regional and HVACR specific economic indicators.
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SOUTHEASTERN REGION T.R.E.N.D.S.
10
Industry
Summary
Reproduction of the material contained in this issue of T.R.E.N.D.S. in whole or part is forbidden without written permission granted by Heating, Air-conditioning & Refrigeration Distributors International.
US Southeast Region Housing Permits totaled 333.9
thousand in the 12 months through August, up 11.3%
from the year-ago level. Slower growth in Permits are
expected to characterize the remainder of 2016 and
early 2017. Despite the changing rate of growth,
Permits will generally rise into early 2018 before a
declining trend takes hold through at least the
remainder of 2018.
Existing Home Sales in the South, a three-month
leading indicator, have tentatively transitioned to
Phase B, Accelerating Growth, signaling general
expansion in Southeast Permits into early 2017.
Slower Permit growth is present in Tennessee and
Alabama, while Virginia is in year-over-year
contraction. These areas will provide limited new
opportunities, while states such as Florida and North
Carolina are more prosperous.
Southeastern Housing Construction
Annual Trend: 333.9 thousand units Phase: C Year-over-Year: 11.3%
2016: 5.0%
2017: 9.9%
2018: -1.2%
11
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What to
Watch For
Housing Permits
Virginia Housing Permits contracted 2.2% in the 12 months through August, and is the only state contracting.
Florida, Georgia, North Carolina and South Carolina are all in accelerating growth trends, the most robust
being Florida, with annual Permits rising 17.8% from the year-ago level. Although Tennessee is in a slower
growth trend, it will likely be short-lived as the quarterly growth rate is rising. Expect Permits in this area to
generally rise in 2017 and into mid-2018.
August(12/12 Annual Growth Rate)
Permits Business Cycle(12 Month Moving Total) (12/12 Annual Growth Rate)
Alabama
Florida
Georgia
Mississippi
North Carolina
South Carolina
Tennessee
Virginia
12
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What to
Watch For
Home Prices
Southeast Home Prices are rising year-over-year, the most robust being Florida with Home Prices in the 12
months through June increasing 10.0% from last year. Georgia, Florida, North Carolina, and Tennessee are
all above the National average of 4.9%, while Alabama, Mississippi, South Carolina, and Virginia are lagging
below the average. Developers will be more incentivized to build homes in areas such as Georgia and
Tennessee, as home prices are increasing at an accelerating rate, subsequently increasing potential profit
margins.
2Q16(3/12 Annual Growth Rate)
Home Prices Business Cycle(3 Month Moving Average) (3/12 Annual Growth Rate)
Alabama
Florida
Georgia
Mississippi
North Carolina
South Carolina
Tennessee
Virginia
13
Forecast Summary
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Annual Permits are expected to mildly decline for the remainder
of 2016, ending the year 5.0% above the 2015 level. Permits will
then rise into the first half of 2018. Contraction will take hold by
mid-2018, bringing the year as a whole 1.2% below the 2017
level.
Housing Construction Forecast
Mar-16 Jun-16
321.8 326.3to to
330.1 335.8
Result 325.1 328.5
Track Record
Annual
Construction
Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18
8.2 4.0 3.5 4.8 6.3 8.6 6.8 4.2 -0.5 -2.8
9.0 5.0 4.6 5.9 7.6 9.9 8.1 5.6 1.0 -1.2
9.8 6.0 5.6 7.0 8.9 11.2 9.4 7.0 2.5 0.4
330.5 329.3 336.5 344.3 353.9 361.0 363.0 362.5 356.4 355.1
332.9 332.5 339.9 347.9 358.2 365.4 367.4 367.4 361.8 361.0
335.4 335.6 343.3 351.5 362.6 369.7 371.8 372.2 367.2 366.8
Annual Permits (Thousands of units)
Upper Forecast Range
Lower Forecast Range
US Southeast Region Housing Permits
Number of New Issuances
Lower Forecast Range
Annual Growth Rate (%)
Upper Forecast Range
14
Industry
Summary
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US Southeast Region Nonresidential Construction
totaled $34.0 billion in the 12 months through
August, up 11.9% from the year-ago level.
Construction is expected to accelerate into early 2017
and subsequently grow at a slower rate into the third
quarter of 2017. Recent decline in the US Institutional
Sector Architecture Billings Index, a 20-month leading
indicator, corroborates the expected decline in
Construction in late 2017.
Southeast Education, Government, Medical, and
Retail Construction are all in accelerating double-digit
growth trends, supporting the upcoming accelerating
growth in overall Nonresidential Construction into
early 2017. Commercial Construction declined in
August, 18.7% below the year-ago level, and is a
potential risk to HARDI Sales. Ensure quality control
keeps pace with the increasing volume, as robust
growth will characterize construction into mid-2017.
Southeastern Nonresidential Construction
Historical Data: CMD
Annual Trend: 34.0 billion Phase: B Year-over-Year: 11.9%
2016: 29.5%
2017: -1.4%
2018: 7.2%
15
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What to
Watch For
Nonresidential Construction
Nonresidential Construction in the Southeast is generally expanding, with the majority of the
region in Phase B, Accelerating Growth. Florida, Georgia, and Alabama are outperforming the rest
of the region as they grow by the double digits. Mississippi and Virginia are in year-over-year
contraction, but are in recovery trends. South Carolina is the only state on the backside of the
business cycle, boding well for operators in every other state in the region.
August(12/12 Annual Growth Rate)
Construction $ Business Cycle(12 Month Moving Total) (12/12 Annual Growth Rate)
Alabama
Florida
Georgia
Mississippi
North Carolina
South Carolina
Tennessee
Virginia
16
Forecast Summary
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Nonresidential Construction Forecast
Results for the second quarter of 2016 fell above the forecast
range. However, internal trends signal results will fall back
within range in September. Construction is expected to rise
for the remainder of the year before generally plateauing
into the end of 2017. Construction will then rise once again
through at least 2018, ending the year 7.2% above the 2017
level. Historical Data: CMD
Forecast: ITR Economics
Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18
16.8 27.2 27.5 13.3 3.4 -3.8 1.1 3.7 4.0 4.7
18.8 29.5 29.8 15.6 5.9 -1.4 3.1 6.2 6.5 7.2
20.8 31.8 32.1 17.9 8.3 1.1 5.0 8.6 9.0 9.7
33.5 35.9 35.7 35.1 35.3 35.3 37.0 37.2 37.6 37.8
34.2 36.7 36.6 35.9 36.2 36.2 37.7 38.2 38.6 38.8
34.9 37.6 37.4 36.8 37.1 37.1 38.4 39.1 39.6 39.8
Annual Construction (Billions of dollars)
US Southeast Region Nonresidential Construction
Bill ions of dollars
Lower Forecast Range
Annual Growth Rate (%)
Upper Forecast Range
Lower Forecast Range
Upper Forecast Range
## Jun-16
## 29.0to to
## 29.9
Result ## 30.3
Track Record
Annual
Construction
17
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Notes:
A warmer-than-normal Summer in the Southeast led to above-average cooling demand for every state in the region. Similar demands
were also reflected in September.
Southeastern Seasonal Climate
Compared to Historical Temperatures for Heating & Cooling Demand
Below Avg Above Avg Below Avg Above Avg Below Avg Above Avg Below Avg Above Avg
AlabamaFloridaGeorgiaMississippiNorth CarolinaSouth CarolinaTennesseeVirginia
Heating CoolingSeptember Summer September Summer
18
Industry
Summary
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Availability of Consumer Loans dropped off in the third
quarter as the diffusion Index fell to 56.1. However,
despite the modest pull-back in Loan Availability,
Demand for Consumer Loans hiked up in the third
quarter. The third quarter Index reading of 63.8 is the
highest since the third quarter of 2014.
The increase in Demand shows somewhat unexpected
resilience amongst borrowers, given the post-Brexit
economic uncertainty that rattled markets early in the
third quarter. The US presidential election marks one
final uncertainty hurdle for the US economy to clear
that could stunt lending liquidity in the final quarter of
the year. However, with a concluded US election and an
accelerating US economy on the horizon for 2017,
consumer credit markets should settle next year.
Consumer Credit Availability
Availably of Loans in 3Q16: DOWN Demand for Loans in 3Q16: UP
61.1
72.2
63.0 64.5 65.561.6
65.7
58.754.4
58.360.4
57.7
63.2 63.8
56.1
20
30
40
50
60
70
80
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q1620
30
40
50
60
70
80
Availability of Consumer Loans
diffusion index, above 50 means availability increasing
59.2
53.1
66.2
50.0
57.1
50.0
65.5
58.3
52.948.6
59.1 59.5
41.0
62.5 63.8
20
30
40
50
60
70
80
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q1620
30
40
50
60
70
80
Demand for Consumer Loans
diffusion index, above 50 means demand increasing
19
Industry
Summary
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AHRI Factory Shipments transitioned to recovery during
the last quarter. Annual Shipments during the 12
months ending in July, at 6.9 million units, are a thin
0.2% below the same period one year ago. Shipments
over the past three months totaled 2.6 million units, up
9.1% and signaling an imminent transition to Phase B,
Accelerating Growth. AHRI Factory Shipments of
Central AC and Air Source Heat Pumps appear poised to
enter 2017 full of positive momentum.
HARDI members felt a similar shift in momentum over
the past three months as well. Average HARDI member
Sales accelerated 7.8% during the 12 months through
August, marking the fastest annual growth rate for
HARDI distributors since early 2014. However, with
Retail Sales, Housing Starts, US Private Nonresidential
Construction, and remodeling activity decelerating,
HARDI members are likely to experience economic
headwinds in the final months of 2016.
HVAC Factory Shipments
Annual Trend: 6.9 million units Phase: A Year-over-Year: -0.2%
-20
-15
-10
-5
0
5
10
15
20
-20
-15
-10
-5
0
5
10
15
20
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
HARDI Member Sales
Factory Unit Shipments
12/12 Growth Rates
Year-over-Year Business Cycles
3
4
5
6
7
8
9
3
4
5
6
7
8
9
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
Shipments of HVAC Equipment Trend
12-Month Moving Total
20
Appendix—Market Definitions
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National Mortgage Rates - Contract interest rates on commitments for 30-year fixed-rate first mortgages. Source: Federal Reserve Board.
National Commercial Lending Rates - Commercial paper financial 90-day interest rates. Source: Federal Reserve Board.
National Construction Inflationary Pressures - Producer price index for construction materials and components, 1982 = 100, NSA. Source: Bu-
reau of Labor Statistics.
National General Inflationary Pressures - Consumer price index for all urban consumers. US city average, 1982-84 = 100, NSA. Source: Bureau
of Labor Statistics.
Steel Prices - Galvanized steel prices (G90, 0.060 “) measured in dollars per ton. Source: Steel Market Update.
Copper Prices - Copper futures prices measured in dollars per pound. Source: Wall Street Journal.
National Home Improvement Construction - Residential additions and alterations measured in billions of dollars, NSA. Source: US Census
Bureau.
National Consumer Activity - Retail sales excluding automobiles and parts. Measured in trillions of 1982-84 (constant) dollars, NSA. Source:
US Census Bureau.
Regional Housing Permits - Total new privately owned housing units authorized for the region, NSA. Source: US Census Bureau.
Regional Nonresidential Construction - Total value of commercial construction project starts for the region, measured in billions of dollars.
Source: CMD.
Consumer Credit Availability - Net percentage of domestic respondents reporting increased willingness to make consumer installment loans.
Source: Federal Reserve Board.
HVAC Factory Shipments - Estimated amount of manufacturers’ shipments of central air conditioners and air-source heat pumps, in millions
of units. Source: AHRI.
21
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Management Objectives 1 Model positive leadership (culture turns to behavior)
2 Establish goals: tactical goals which lead to strategic achievement
3 Develop a system for measurement and accountability re:#2
4 Align compensation plans with #2 and #3
5 Be keenly aware of the BE (Break Even) point and check it regularly
6 Judiciously expand credit
7 Check distributions systems for readiness to accommodate increased activity
8 Review and uncover competitive advantages
9 Invest in customer market research (know what they value)
10 Improve efficiencies with investment in technology and software
11 Start to phase out marginal opportunities
12 Add sales staff
13 Build inventories (consider lead time and turn rate)
14 Introduce new product lines
15 Determine capital equipment needs and place orders
16 Begin advertising and sales promotions
17 Hire "top" people
18 Implement plans for facilities expansion
19 Implement training programs
Phase
A 22
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Management Objectives 1 Accelerate training
2 Check the process flow for possible future bottlenecks
3 Continue to build inventory
4 Increase prices
5 Consider outside manufacturing sources if internal pressures becoming tight
6 Find the answer to “What next?”
7 Open distribution centers
8 Use improved cash flow to improve corporate governance
9 Use cash to create new competitive advantages
10 Watch your debt-to-equity ratio and ROI
11 Maintain and pursue quality; don’t let complacency set in
12 Stay in stock on A items, be careful with C items
13 Consider selling the business in a climate of maximum “goodwill”
14 Penetrate new selected accounts
15 Develop plan for lower activity in traditional, mature markets
16 Freeze all expansion plans (unless related to “what is next”)
17 Spin off undesirable operations
18 Consider taking on subcontract work if the backside of the cycle looks recessionary
19 Stay realistic – beware of linear budgets
20 Begin missionary efforts into new markets
21 Communicate competitive advantages to maintain margins
Phase
B 23
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Management Objectives
Phase
C
1 Begin work force reductions
2 Set budget reduction goals by department
3 Avoid long-term purchase commitments late in the price cycle
4 Concentrate on cash and balance sheet
5 Reduce advertising and inventories
6 De-emphasize commodity/services in anticipation of diminishing margins
7 Weed out inferior products (lose the losers)
8 Encourage distributors to decrease inventory
9 Identify and overcome any competitive disadvantages
10 Make sure you and the management team are not in denial
11 Cross train key people
12 Watch Accounts Receivable aging
13 Increase the requirements for justifying capital expenditures
14 Evaluate vendors for strength (don’t get caught honoring their warranties with no one
15 Manage the backlog through pricing and delivery, try to fill the funnel
24
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Management Objectives
Phase
D
1 Continue force reduction
2 Reduce advertising – be very selective
3 Continue to avoid long-term purchase commitments
4 Review all lease agreements
5 Increase the requirements for justification of capital equipment
6 Eliminate all overtime
7 Reduce overhead labor
8 Combine departments with like capabilities and reduce management
9 Select targets of opportunity where price will get the business
10 Tighten credit policies – increase scrutiny
11 Look for opportunistic purchases
12 Grab market share as your competitor dies
13 Prepare training programs
14 Negotiate union contracts if possible
15 Develop advertising and marketing programs
16 Enter or renegotiate long-term leases
17 Look for additional vendors
18 Consider capital expenditures and acquisitions in light of market-by-market potential
19 Make acquisitions – use pessimism to your advantage
20 People will be scared – lead with optimism and “can do” attitude
25