The Fire Sprinkler Roundtable

 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.

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

The Institute for Supply Management’s manufacturing index rose earlier this month to 60.4, its highest level since June 2004.  This marked the ninth consecutive monthly rise for this index.  In addition the index’s new orders metric, a measure of future demand jumped considerably from 61.5 in March to 65.7 in April. Three other measurements also rose in April:

Readings above 50 indicate expansion and readings below 50 indicate contraction.

The consensus is that the expansion in manufacturing is becoming more broad based – a very healthy sign for the economy.

We would like to hear from you, is this indicative of any increased business activity in your area?    Please use the following link to share your comments.

The Economy – The Fire Sprinkler Roundtable

The NFSA Board of Directors meeting in mid-April that was held in conjunction with our Annual Seminar in Chicago did not suggest that an economic recovery for our industry was imminent.  As backlogs continue to shrink, all the companies represented on our councils continue to very carefully monitor the expense side of their budgets.   While corporate earnings as reported in previous articles continue to improve, reduction in staff and higher productivity appear to be the driving factors to healthier balance sheets.

There appears to be some suggestion that we are at the bottom of the recessionary cycle, but there seems to be a consensus that we may not see any improvement in business conditions in the foreseeable future.   While installation hours continue to deteriorate, the drop from month to month seems to have stabilized.   NFSA is looking to improve the enforcement of NFPA #25 in an effort to give the standard “more teeth” when adopted at the local level.   Look for updates in the minutes of our Board and Council meetings and on NFSA’s web site www.nfsa.org.   If you see any improvement in business activity as compared to the same time last year please use the link below to comment on our blog….we would certainly like to report some good news!

We are getting reports from the field that several large general contractors in the Midwest are requesting “new” bids on contract prices previously agreed to.  In some cases the fire sprinkler drawings have been completed yet all subcontractors have been told to review their bids.  This practice is without precedent and further suggests that there still remains very little day-light at the end of the “sprinkler economic tunnel”.

Corporate earnings are improving because the balance sheets of most companies are gaining strength due to “personnel cut backs” and very careful spending at every level.  This, unfortunately, is not translating into new business as financial institutions still have a “strangle hold” on funding.   Backlogs are being “chewed up” and competition for all new work is “fierce” with numerous bidders on every job.

However, I am delighted to report that contractor membership in NFSA remains solid with very little attrition.   For that we are very grateful.

We would encourage you to blog us with news of what is happening in your part of the country.

January was not a good month for the equity markets here and abroad.  Your 401K’s may have lost as much as 15%. February is starting off on a much more positive note …but as you all know a paper loss is not a loss until you sell.

Field reports on new business activity remain quite grim.  Jobs under contract are being postponed indefinitely or canceled because financing is non-existent.  Economic reports suggest an impending commercial real estate crisis on loans which will default…we are talking about a potential financial “meltdown” approaching 1.5 trillion dollars.  While balance sheets for a majority of businesses are improving dramatically, layoffs and consolidation of business units are the main reasons.  Unfortunately, no new hires or capital expenditures are expected in the near term.  Excess capacity at every level is the culprit and until we see some dramatic absorption in both residential and non-residential space we will continue to “muddle along”.

Government debt is also a major concern and there remains a lingering concern that inflation will rear its head.  While long term prospects for the industry remain “bright” the concern in the sprinkler marketplace is fewer companies will be around to participate in that market unless we see some dramatic increase in non-residential construction.   We would like to hear from our readers as to what you are seeing in your market areas.

I have just returned from meetings in the Midwest and New York City and reports from our contractors and suppliers are not good. While there appears to be a general consensus in both the printed and electronic media that the general economy has “turned the corner” it is evident that new non-residential and residential construction is still mired in a deep malaise. Excess capacity appears to be the culprit in both arenas. Large inventories of single family homes approaching five million units and unoccupied commercial real estate need to be absorbed before any “new” building investment can be realized. That appears to be somewhat distant on the present economic landscape. While several developers are “testing the waters” and asking for “budget” prices on “pending projects” most are put on hold because credit is not available.

Several contractors have suggested that 2010 will be “worse” than 2009 because of nonexistent backlog. Cuts are being made at every level and more bankruptcies may take place. While long term optimism is certainly realistic the question still remains for the next 24 months “how long is long” and will I still be around to reap the benefits of the recovery? Equity Markets appear to be stimulated by scattered improved earnings reports but for the most part investors appear to be very cautious in the early weeks of the new decade.

Once again we encourage our readers to “blog” with any comments ….we would certainly be interested in learning if any sector of the country is experiencing any positive economic signs which differ from this month’s roundtable report.

John A. Viniello, NFSA President

The last issue of Grass Roots, which was sent electronically to most of our readership, contained a “blog” link which as we write this issue was relatively quiet.  Perhaps everyone agreed with what was said regarding the present state of the sprinkler economy. Let’s see what this month brings.

While sprinkler device shipments and installation hours continue to trend downward it appears that the rate of decline is not as dramatic as it was during the last several months. Hopefully, this is a good sign that we are at the bottom of the recessionary cycle. In fact, one report that surfaced in mid-November suggests strong economic growth and a huge stock market rally in 2010. The reasoning behind this very “bullish” prediction makes sense:

1. Pent up demand: Businesses at every level have delayed capital expenditures ranging from new equipment to expansion. This will begin to show “signs of life” in early 2010.
2. The same is true of the consumer whose “belt tightening” has resulted in debt reduction. The prediction is they will begin to spend as well.
3. Financial institutions which at every level have improved their balance sheets will begin lending at higher levels.

The key of course is still consumer spending. This is the engine that will start us back to the road of economic recovery. Companies at every level have been “running lean and mean” will see a dramatic increase in earnings even with a modest uptick in consumer spending. This in turn will have a very positive effect on the stock market, particularly equities. Some investment managers are predicting a shift in portfolio allocations from fixed income to equities beginning early next year. Traditionally the last quarter (Oct-Dec) has seen poor performance in the financial markets, yet this year significant gains have been realized “bucking” traditional trends.

I’m hopeful that in early 2010 the “patient” (the sprinkler economy) will be off life support and begin the road to recovery…we would like to hear from our readers.

This is the first of a series of articles on the present state of the economic climate existing in the fire sprinkler industry that will enable our readers to “blog” a response.

Reports from the field are not encouraging and paint a very bleak picture going forward.  The results of the contractor survey suggest that the present recession may be prolonged.  The large inventory of residential and non-residential buildings may contribute significantly to the duration of this downturn.  While most economists suggest that the general recession has bottomed out the recovery may be lengthy.  Backlogs are being “chewed up” and new bookings in some areas are off dramatically from a year ago.  Many jobs have been put on hold or canceled due to a lack of financing.  Hopefully the six and half billion dollars in the latest federal stimulus package for school construction may help in the near term; however, the long range prospects for new non-residential construction are not good.  Architects and specifying engineers have very little on the “boards” according to some of the “field” feedback we are receiving.  Please take a few minutes to let us know if you are seeing anything that differs from this information.

John A. Viniello, President  NFSA

Contractor Survey Results