What's in Store for the Mechanical Systems Industry in Q3, Q4, and Beyond?

We’re more than halfway through the year, and many intrepid economists are talking about how all signals point to a U.S. economy on the mend: housing starts and prices are up, as are durable-goods orders (up 42 percent in June), and the gross domestic product (GDP) is ticking slightly ahead of where early predictions had it (up 1.7 percent in the second quarter).

Other economy watchers—from trade groups such as the American Boiler Manufacturers Association (ABMA) to newspapers such as The Wall Street Journal—are seeing a slowdown and potential return to recession in late 2014.

In the ABMA third quarter economic report, released in July, boiler manufacturers are being told the uptick in housing is a good indicator that construction is improving. But, the report goes on to state that the growth rate will slow toward the end of 2013 and into 2014. “This slower growth trend will lead to a mild recession by year end 2014,” the report states.

In a blog written on the Industrial Distribution magazine’s website, by Contributing Editor Jack Keough, the news is similar.

Keough writes that manufacturers and distributors, overall, haven’t seen much increase in business yet, and he calls the GDP growth “anemic any way you look at it.” He adds that uncertainty about further government regulations (e.g. Obamacare) and its impact on business growth is a top concern in the wholesale distribution business.

Meanwhile, in the mechanical-systems trades, Heating, Air-conditioning and Refrigeration Distributors International (HARDI) announced average sales growth for their reporting HVACR distributor members increased 5.9 percent through June 2013.

“Improving consumer spending trends and additional gains in residential construction continue to support HARDI member sales,” HARDI Senior Economist Andrew Duguay writes.

“Retail sales in the second quarter experienced the highest year-over-year growth rate in more than a year,” Duguay adds.

The Wall Street Journal reported in its Aug. 1 edition that the overall “tepid” growth of the U.S. economy has caused the Federal Reserve Bank (Fed) to rethink its plan to reduce its “easy money” policy. In other words, they’re scraping plans to end the $85-billion-per-month bond-buying program meant to boost growth and hiring.

This coincides with the HARDI prediction and plays into the commercial sector as well. Going back to the ABMA report, which concludes that the Fed’s current and future stimulative monetary policy will help a consumer-led business-cycle rising trend beginning in late 2014/early 2015 and extending through 2016.

So sluggish growth, a potential new recession, and an upbeat consumer-led business cycle either leaves our collective heads spinning or gives us the “oomph” we need to take advantage of whatever opportunities lay ahead.

Such opportunities could lay in the hospital-building construction market which, according to the ABMA, is now at its lowest level in six years, but is showing signs of growth, especially in light of Obamacare.

The study also finds that public educational-building spending is way down, though it says governors from 42 states show budget plans to increase spending in this area in 2014.

Office-building construction has begun to slow down again. Spending is predicted to increase by the end of 2013, but is also seen to be slowing in 2014. Opportunities may lie in the repurposing of office space.

It is a complicated and confusing economic time, but there are still opportunities in the HVAC industry for those who approach the marketplace with their eyes wide open.