For a glimpse at what 2005 has in store for the sheet metal and construction industry, just look back at 2004.



Political candidates sparred over it, company owners fretted about it and average workers kept their eyes on it.

The economy was a major issue for all industries in 2004, and the same was true for the sheet metal and air-conditioning industry. But this year wasn't entirely a financial and economic nightmare. No one will argue that there weren't challenges for the construction industry (steel prices), but the last year also had its bright moments. According to some, 2005 could look a lot like 2004 with very similar challenges and opportunities.

Building houses and the economy

"We had a strong year, and I see the same for 2005," said Donald Frendberg, executive vice president of the Heating, Airconditioning and Refrigeration Distributors International.

Statistical data from HARDI for the month of August revealed that wholesaler members saw about a 9 percent increase in year-to-date sales. When asked how they thought they would end the year, most saw their businesses ahead by 5 percent.

Frendberg points to residential construction and low interest rates for these promising numbers. In fact, Frendberg said that the cooler summer should have slowed down business for many wholesalers and distributors, but low interest rates helped to keep building projects at an all-time high. According to the U.S. Department of Commerce, the demand for new homes rose by 9.4 percent to approximately 1.2 million units.

The Federal Reserve Board adjusted the short-term interest rate from 1.50 percent to 1.75 percent back in September, and some suspect that interest rates could increase again in 2005, creating higher mortgage rates. But some in the HVAC industry do not believe the increase will cause a major slowdown in building projects.

"Residential construction, I believe, will continue to be strong," said Frendberg.

The Air-Conditioning and Refrigeration Institute also has a good feeling about the upcoming year. If this past year is any indication, the institute may be right. A single-month record was set in June, when shipments of central air conditioners and heat pumps climbed past the 1 million mark.

William G. Sutton, ARI president, also said he believes that 2005 will see an increase in mortgage rates.

"Fortunately, job growth is slowly improving across the country," he said. "With more jobs, consumer confidence is likely. And, an expanding work force means a good environment for construction of homes, offices and industrial plants."

Sutton added that with an increase in mortgage rates, the shipments of HVACR equipment should still be healthy for 2005, even if it doesn't reach 2004's record levels.

Steel still a problem

To say steel was expensive during 2004 would be the understatement of the year for the sheet metal industry. Shortages of steel and rising demand for the product resulted in price increases of up to 40 percent.

"Steel prices are still high, but the extreme rise in prices we experienced in the spring has subsided," said Kevin Harping, president of the Sheet Metal and Air-Conditioning Contractors' National Association. "We believe that steel prices will remain at the levels they are at now through 2005."

During the past year, in an effort to help contractors deal with steel costs, SMACNA's legal council drafted guidelines and clauses for businesses to put into contracts. These clauses will help SMACNA members adjust their prices on projects depending on the fluctuation of steel prices, officials said.

Paul Stalknect, president and CEO of the Air Conditioning Contractors of America, also said he believes that steel prices will continue to be an issue, but contractors can successfully deal with it if they know what to do.

"It all comes down to contractors building ‘service companies' that can easily pass along the cost of the commodities they must purchase because the value they add is worth it," he said. "Contractors who try to absorb higher prices out of fear of lowballing competitors will be at a severe disadvantage."

A continuous issue

For some, the new year will bring challenges that have existed for years. More specifically, the shortage of qualified workers.

"The biggest challenge will remain the same: attracting, recruiting and retaining qualified individuals to work in the industry," said Stalknecht. "Our society continues to make it more difficult to attract those individuals by failing to place the needed emphasis on vocational education. Trades should be held up as not just a viable option, but as an attractive and financially rewarding option."

Stalknect, the ACCA and several of its partner associations recently teamed up to make vocational education a visible issue. Letters urging support of vocational education were sent to President Bush and two of his cabinet secretaries, Elaine Chao of the Department of Labor and Rod Paige of the Department of Education.

"Through our coalition we intend to keep up the pressure and continue working to make vocational training a priority at all levels," said Stalknect.

The U.S. Department of Labor has started to show its support of the trades. In September, Secretary Chao, during a meeting with the National Association of Home Builders, introduced a Home Builders Institute grant. The grant is the first in a $19 million program, which will aim to develop skilled workers in the trades.

"Construction is at an all-time high in our country," Chao said at the meeting. "That's because more people can afford to own their own homes than at any other time in our nation's history."

The first phase of the grant will create 10 new construction "academies" with the purpose of placing 2,500 individuals in a two-year curriculum for residential construction.

"Workers in carpentry, wiring, plumbing, heating and air- conditioning installation, and all the other components of home building, are literally the backbone of our nation and our economy. Without them, we would not be the nation of homeowners we are today," said Chao.

Jobs and the year ahead

Job growth in the last couple of years has been underwhelming for some industries. The Labor Department reported in September that the unemployment rate remained at 5.4 percent. This is an improvement over June 2003, when the national unemployment rate hit a high of 6.3 percent.

But the future for jobs in the sheet metal industry looks good, according to Bureau of Labor Statistics. The bureau reports that employment in the sheet metal industry is expected to grow by 10 percent to 20 percent through 2012.

Harping believes that the decline in the construction activity during 2002 and 2003 could be stabilizing.

"A 15-year analysis of SMACNA's man-hour history reveals a direct correlation between man-hours and the U.S. economy," he said. "A strong economy generates robust man-hours, while a weak economy delivers lackluster hours. During the first half of 2004, the U.S. economy continued to demonstrate improvement. We're keeping our fingers crossed that 2004 ends on the upside."

SMACNA says it is helping contractors see the upside of 2005. The association is touting its work with the Construction Specifications Institute for revisions to its MasterFormat to separate the plumbing and HVAC divisions. Harping said the new division gives more credence to sheet metal and HVAC contractors.

Developed by the Construction Specifications Institute, the MasterFormat is a specifications-writing standard for construction projects and designs for nonresidential building. CSI says that MasterFormat standardizes construction data to help in communication between contractors, suppliers, architects and others involved in construction.

"Our bid specifications task force is developing a bid scope document for general contractors and owners that is compatible with MasterFormat Division 23 - HVAC," said Harping. "This new document will enable owners and general contractors to translate Division 23 into bid specifications and identify the HVAC system as a bid component. It and other products will be available in 2005."

Harping also explained that SMACNA is working to help sheet metal workers during the next year with the development of a new Web site. The Web site will help answer questions from HVAC owners, and provide owners with a contractor to fit their project specification needs.

Finally, Harping said that SMACNA has joined the Construction Users Roundtable, an association of 50 major owners in the construction industry.

"Participation in CURT is yet another opportunity for SMACNA to reach out to our customers and elevate the union HVAC and sheet metal sector," he said.

Like Harping, Stalknecht is also encouraging contractors to take advantage of tools in the industry that will help contractors have a successful 2005.

"Get together with other businesspeople through industry events or an ACCA MIX group," he said. "When I see some contractors struggle, I want to gently shake them and remind them that they got into business so they could lead a fuller and richer life - and by richer, I don't just mean in terms of money, I mean quality of life. There are tools and resources you can use to turn your business into a source of reward and fulfillment. Use them."