The Fire Sprinkler Roundtable

The general economy appears to be at the bottom of one of the longest recessionary cycles since the Great Depression. Unfortunately, while the construction industry is always on the “tail end” of any recessionary cycle, it is also at the “tail end” of any recovery. While bidding activity has increased in some areas we don’t expect any significant growth before the first quarter of 2012. While NFSA has budgeted revenues as being flat for 2011 when compared to 2010, many suppliers and manufacturers we have spoken to are forecasting single digit increases. The strength in modern building codes which effect buildings with sprinkler protection is such that we will be protecting a larger number of buildings from a much smaller inventory. This will bode well for the recovery.  We welcome any comments in our “blog” from our members. We would be interested in bidding activity and if anyone is seeing any easing of credit lines in recent months.

Byron R. Wien, Vice Chairman, Blackstone Advisory Partners, today issued his list of The Ten Surprises for 2011. This is the 26th year Byron has given his predictions of a number of economic, financial market and political surprises for the coming year. Byron defines a “Surprise” as an event which the average investor would only assign a one out of three chance of taking place but which Byron believes is “probable,” having a better than 50% likelihood of happening.

Byron started the tradition in 1986 when he was the Chief U.S. Investment Strategist at Morgan Stanley. Byron joined The Blackstone Group in September 2009 as a senior advisor to both the Firm and its clients in analyzing economic, political, market and social trends.

The Surprises of 2011

1.The continuation of the Bush tax cuts coupled with the extension of unemployment benefits has put all working Americans in a better mood. Real Gross Domestic Product rises close to 5% in 2011 driven by improved trade and capital spending in addition to stronger retail sales. Unemployment drops below 9%.      

2. The prospect of increasing Federal budget deficits and rising government debt finally begins to weigh on the bond market. The yield on the 10-year U.S. Treasury approaches 5% as foreign investors become more demanding. Spreads with corporate fixed income securities narrow.     

3. Encouraged by renewed economic momentum the Standard & Poor’s 500 rises close to its old high of 1500. A broad range of sectors participate, but telecommunications and utilities lag. With earnings improving, valuations seem low and individual investors return to equities for the first time since the financial crisis. Merger and acquisition activity becomes intense and the market reaches a blow-off euphoria. Stocks correct in the second half as interest rates rise.
     
4. Although inflation remains benign, the price of gold rises above $1600 as investors across the world place more of their assets in something they consider “real.” Sovereign wealth funds of countries with significant dollar reserves also become big buyers. Hedge funds keep thinking the price rise is becoming parabolic and sell their positions and some even short the metal but gold keeps climbing and they scramble back in.      

5. Worried about inflation and excessive growth, the Chinese decide to use their currency as a policy tool. They manage the value of the renminbi (the official currency of the People’s Republic of China) aggressively to keep the growth of the economy below 10% and to prevent
consumer prices from increasing above the 4%-5% range. The move is viewed as a precursor to the world-wide adoption of a basket including the renminbi as an alternative to the use of the dollar as the principal reserve currency.      

6. Rising standards of living in the developing world seriously increase the demand for agricultural commodities. The price of corn rises to $8.00, wheat to $10.00 and soybeans to $16.00. Commodities become a component of more institutional portfolios.

7. The housing situation improves. Although the inventory of unsold homes remains high, the oversupply is drawn down substantially, contrasting with an increase in 2010. The Case-Shiller gradually heads higher and housing starts exceed 600,000. 

8. Continuing demand from the developing world and a failure to bring onstream new supply causes the price of oil to rise to $115 per barrel. The higher price at the pump fails to discourage driving, increase sales of hybrid vehicles or cause Congress to initiate conservation measures.
     
9. Frustrated by the lack of progress against the Taliban and the corruption of the Karzai government, President Obama concludes that whenever American troops return home, Afghanistan will once again become a tribal state ruled by warlords. He accelerates the withdrawal of most military personnel to the end of 2011. Coupled with the pullout of forces in Iraq, this will leave the Middle East without a major Western presence in the face of rising fears of terrorism.     

10. Under duress Angela Merkel leads the way in European financial reform. The weaker countries, having pledged to cut their budget deficits in half by 2014, are provided additional transitional aid by the European Union (with Germany’s backing) and the International Monetary Fund as long as they implement their austerity programs, increase some taxes and still show modest growth. The European financial crisis becomes less of a concern. The policies put in place prove psychologically satisfying to the financial markets but harmful in the longer term because they are palliative and do not represent solutions.

We’re interested in your reactions! 

John A. Viniello, NFSA President

Business confidence seems to be on the upswing.  Wholesale inventories rose almost 2% in October to $427.1 Billion suggesting that suppliers and business expect a robust holiday sales season.

The October report on wholesale inventory was a “breathy of fresh air” for the economy. With sales rising to a seven month high it appears that more suppliers and business are confident that increased demand will take product “off the shelves”. As you all know inventory build-up and replenishing leads to more jobs and increased production.
 
Contractor dues to NFSA showed single figure declines, for the 1st time in months, when comparing November 2010 to November 2009. Field reports from some of our contractors indicate some increase in bidding activity, although price levels continue to be depressed.  Declines in revenue for both October and November to the Industry Promotion funds barely made double digit losses when compared to the same period a year ago.  While excessive inventories of residential and non-residential construction are troublesome…strong building code requirements for fire sprinklers suggest we will be protecting a larger number of structures from a smaller inventory of buildings being erected. 
 
We would like to hear from our readers….any improvements in your area?
 
Anyone wanting to share their views, comment at the blog here.  
 
                                                                                    John A. Viniello, President NFSA

We, like many of you, are in the process of assembling our Budget for 2011. Naturally, we need to provide our Finance Committee with our forecast for the balance of 2010 based on 8 months actual revenue and expense and our budget for 2011. All indications suggest that we may indeed have reached the bottom of the downturn…contractor dues to both NFSA and our Industry Funds appear to have stabilized over the last three months and manufacturers’ sprinkler shipments have shown a slight uptick  in every quarter since the beginning of the year. While construction spending is at an all time low, the strength of sprinkler requirements in building codes should not be overlooked. We continue to protect a larger number of buildings from a smaller inventory being erected than ever before in our history. In speaking to contractors from coast to coast and border to border I’m being told that while there is work to bid, the number of bidders on a job make pricing very competitive. Balance sheets at every level remain very strong as we have indicated in previous reports. Organic growth, unfortunately, is not responsible for this strength. Cutbacks and greater productivity within every business is  making “cash” the king. In my view, once the consumer begins spending, we may see some investment in capital expenditures.  There are still headwinds to overcome but they don’t appear to be as strong as they were 12 months ago. Anyone want to share their views, comment here.  

In recent days economic data suggests the economic recovery is gaining momentum. Trade deficit numbers are encouraging, corporate profits have soared, consumer debt has been drastically reduced and personal savings are improving. Hopefully consumer spending will show a marked increase and this engine which traditionally has been the driving force of improving the economy will begin picking up some steam. When will this translate into business for our industry? Backlogs continue to shrink and are not being replaced at levels that inspire confidence for the near term. The Building code requirements requiring fire sprinklers for new construction from homes to high rise are in place. I’m hopeful we will begin seeing some improvement in business activity by the second quarter of 2011. We ask our readers to “blog” their view of business activity and how they see things for the balance of this year into 2011.

The results of the Homeowner’s Insurance Credit survey are linked to this month’s insurance blog.  There were a total of 79 responses, many with comments.  Most automatic fire sprinkler systems are garnering a discount of 1-10%.  These responses made up 58 of the 79.   You will note when reviewing the responses that there are vast differences even among the same insurance companies.  We have yet to learn if the differences are merely due to ratings based upon region, or if it could have something to do with type of construction, age of structure, etc.  This is still to be learned by NFSA and subsequently reported to our readers.
 
Please click the following link to view the full matrix of the response.  - August 2010 - Insurance Survey Results
 
Thank you, NFSA greatly appreciates the time spent answering and as promised we will be emailing the results to those that provided email addresses in their response.
 
                                                                                                John A. Viniello, President, NFSA

 Reports from the field suggest we may have bottomed out from the worst recessionary cycle in the history of our Industry.  While bidding activity cannot be characterized as robust reports suggest that business activity, at the very least, has stabilized.  The recovery during this cycle will, from all reports, be “painfully slow” with levels of activity moving upward at a “snail’s” pace.  We would be interested in hearing from our members if there appears to be any improvement in your area.  Just blog your response by clicking here.  Also of interest would be the type of occupancies being protected. 
 
Hopefully we will begin to see some sustained growth, no matter how small, in the coming months.

Many of our readers live in homes protected by residential fire sprinklers. In an effort to determine what credits for having fire sprinklers are given by insurance carriers, we ask that you take this short survey. NFSA is having discussions with several large insurance carriers and is seeking credits in excess of 20% for homeowners that have these protections. As an example, I receive a 19% discount from The Hartford.

Please click the following link to answer this short, five question Insurance Survey!

Thank you, NFSA appreciates your input and assistance. John A. Viniello, President, NFSA

Results are in from the latest Contractor Backlog Survey. Results as of May 15, 2010 appear to be a bit more optimistic than those as of September 2009. We have also had reports from a few suppliers that say they’ve seen some improvement in business this year. Please report any trending you see in your own business or region by leaving a comment.

Backlog Survey