International Door & Operator Industry

NOV-DEC 2018

Garage door industry magazine for garage door dealers, garage door manufacturers, garage door distributors, garage door installers, loading docks, garage door operators and openers, gates, and tools for the door industry.

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Page 22 of 110

20 International Door & Operator Industry™ MANAGEMENT Continued from page 19 that proposed tariffs will confront its customers with cost increases for essential items like car seats, cribs, backpacks, hats, pet products and bicycles. The Walmart warning stated, "… for lower-income families, a 25% tax [tariff] on these items would be a serious burden on household finances" [and that] "Walmart and our suppliers will pay the cost of increased duties, which are simply taxes levied on products at the border. As a result, either consumers will pay more, suppliers will receive less, retail margins will be lower, or consumers will buy fewer products or forego purchases altogether." 1 The company also noted that tariffs would put in jeopardy a commitment to purchase an additional $250 billion in products that support American jobs. Construction Industry Conditions While the overall economy continues to march along, construction activity has staggered slightly with the twin burdens of rising costs and serious labor shortages. Homebuilding activity declined in June but was up 7.8 percent on a year-to-date basis. Non-residential construction started in June was down 6.3 percent, compared to June 2017. For the first half of 2018, non-residential starts were down by almost 14 percent from 2017. This was offset by a 13 percent increase in heavy engineering projects, but there are few garage doors and operators in road and pipeline building. The supply of houses for sale remains very low – realtors indicate that a four month supply exists, about one-half of the desired level. Ideally, more houses would be built, but all the things discussed above – high costs (particularly 1:, September 21, 2018 construction wages), tariff impositions and increasing interest rates are forestalling such expansion. Additionally, as any garage door dealer will lament, finding trained and dependable technicians is next to impossible, particularly in high-growth markets such as San Francisco, Nashville, Dallas and Boston. In short, accelerating demand should be stimulating supply, but cost-push inflation and low-growth wage patterns in much of the economy are distorting the classic economic equation. New home completions will grow in 2018 for the eighth straight year, but the total projection of 1.3 million units is insufficient to moderate escalating home prices. Rising materials costs - stimulated in part by dubious tariffs on lumber - and serious skilled labor shortages are likely to constrain construction growth. Another consideration for most homeowners is the desirability of keeping home values high. Thus, there is little resistance to tightened credit requirements for new mortgages and accelerating interest rates. Chart 1 displays the historical relationship between house completions (single plus multi-unit dwellings) and the value of residential construction put-in place. The post- recession expansion is evident, as is the fact that value has accelerated more rapidly than units (the blue bars in the chart have grown more rapidly than the red line). There is divided opinion on direction for 2019, but we believe that growth will be flat, as costs, labor supply and mortgage rates combine to dampen activity. In reviewing Chart 1, keep in mind it reflects new residential construction only and does not include retrofit and replacement activity, which is nearly three-times as great in terms of garage Continued on page 23

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