AAMA e-News: Opening Thoughts from the President and CEO
August 30, 2011
Mounting concerns over the United States’ economic recovery are abundant, especially in light of the stock market roller coaster ride over the past few weeks. The S&P index continues to decline in historically high percentages and points frequently, and the unemployment statistics waver on a weekly basis. As a result, it is often difficult to see beyond the discouraging news and mounting fears in order to take aggressive business action.
In just two months time, the forecasts have dropped from a slight uptick in the second half of this year, to a return to recession. Even within our industry, the USGlass News Network published a recent article on August 11 titled, “Financial Freefall: What Lies Ahead” in which it was stated that “the Volatility Index was up 50 percent, and economists on CNBC’s Kudlow Report…predicted a 50-percent chance of a double-dip recession in the next two years.” While short term volatility does not guarantee another plunge, it does indicate enormous uncertainty and reluctance to make capital investments.
But among USGNN’s statistical analysis was the perspective from several glass and glazing company stocks that are well known in the industry and which experienced a significant impact from the stock market decline.
So, in light of the recent volatility, AAMA sought member perspective of the impact on our industry as a whole.
“For the past three years, we have planned for and budgeted sales based on forecast of a recovery,” says Kim Flanary, Director of Engineering at Milgard. “This year, we are planning and budgeting based on the assumption that we will not experience a recovery for several more years.”
Offering his perspective as an employee of a large company, Flanary notes that “the poor economy in general, which started to decline in 2007 – 2008, can be attributed to many factors, such as high risk lending that required federal government bailout of banks and the high rate of mortgage defaults and home foreclosures. Add to this the overbuilding of housing inventory at the start of the century and the inability of our government leaders to managing spending to a realistic budget.”
Rod Hershberger, Chief Operations Officer and President of PGT, a midsized window producer, stated, “A combination of the impasse in D.C., credit availability, jobs (or lack thereof) and the wild fluctuations in the market has eroded consumer confidence,” he says. “Some type of stability is critical to at least steady our market, if not grow it.”
In terms of sentiments of the stock market recovering, Hershberger expressed a similar innovative approach as Flanary, maintaining: “While we may see small pockets recovering somewhat, overall market recovery (IMO) will come back with job creations, but until we see unemployment rates drop, our hope for an overall market recovery doesn’t seem reasonable.” Hershberger continued that it doesn’t seem likely that the market will “improve until late 2012 or 2013, which means we have to make it through a potentially very contentious election cycle.”
Chris Magnuson, President of Wasco, a smaller privately owned skylight manufacturer that has yet to experience the impact of the recent stock market ups and downs, provides a different perspective. “In my opinion, both commercial and residential construction markets will continue to recover slowly, and levels of 50 to 70 percent of previous highs can be expected in the foreseeable future.”
But when the question of how each company plans to address these challenges, regardless of their size or the stock market’s unsteady performance impacting their company’s sales arose, the overall consensus was in accordance.
Chuck Gilderman, President of FeneRep, a Manufacturer’s Representative Firm, believes that tough times call for desperate measures. “We need to tighten our belts and dig for anything we can, depression style.”
It is painfully obvious that the foreclosure backlog and lack of job growth will continue to choke off the recovery in housing starts. If the success of the TARP program is any indication, the highly anticipated second stimulus government bailout will also be poorly conceived and ineffective. Let’s anticipate that “pricing pressures, consolidation of suppliers and manufacturers, energy and green issues with big government inserting their opinions and rules,” will be main areas of concern in coping with these challenges, as Hershberger states.
And as such, I concur with Chris Magnuson that a reasonable approach of “dealing in a smaller, more energy conscious market with high and probably more volatile material and energy prices will be necessary in moving forward.” Until the traditional new construction market breaks free, “we will need to continue to innovate, add product value and drive efficiency to prosper.”
As we work through these difficult times, AAMA is dedicated to continue to proactively and effectively influence codes, construction and specification issues. I look forward to hearing more feedback from our members on the innovative ways they will weather the economy during our upcoming Fall Conference. For more information on this event, read the full article in this month’s AAMA e-News.
American Architectural