International Door & Operator Industry

MAY-JUN 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 36 of 110

MANAGEMENT 34 International Door & Operator Industry™ Finally, the position stated by Carl Elefante, president of The American Institute of Architects, was as follows: 3 " The Administration's announcement of new tariffs on steel and aluminum imports threatens to drastically increase the prices of many building materials specified by architects. These metal products are some of the largest material inputs in the construction of buildings. Structural metal beams, window frames, mechanical systems, and exterior cladding are largely derived from these important metals. "As creative problem solvers, architects rely on a variety of these materials to achieve functional and performance goals for their clients. Inflating the cost of materials will limit the range of options they can use while adhering to budgetary constraints for a building …" Is the Reaction a Bit of Overstatement? It is wholly understandable and laudable that industry leaders defend their constituencies against all threats, but all three statements may be a bit excessive in formulating the potential impact of steel and aluminum tariffs on construction activity. The quantity of steel included in a given building (not heavy engineering) project varies significantly, but probably averages around 22 to 24% of the total cost, including structural and fabricated components. Remember that "average" includes residential building with typically far less steel per project than commercial structures. (continued from page 32) At least one estimate notes that raw materials (at which the tariffs are directed) constitute only about one-third of the "… total steel package." 4 Even if we expand that estimate to 50%, and recognize that: a) Only a fraction of steel used in buildings is imported, and b) Competitive positioning will make it unlikely that domestic producers generate an across-the-board price hike equal to the tariff percentage, the potential impact is less ominous that first reaction may suggest. Using the preceding assumptions, a $1.0 million building (construction cost) would include approximately $230,000 of steel products, about 50% of which could be subject to tariff-inflated pricing. Even if the assumed $115,000 of raw steel were subjected to the full 25% tariff increase, the net impact is less than 2.9% of the aggregate cost ($1.0 million x .23 x .5 x .25 = $28,750). At prevailing levels of economic growth, employment and business investment, a two to three percent building cost increase may be inflationary, but will unlikely erode construction demand "for years to come". Moreover, competition and design creativity would dramatically whittle- down the 2.9% calculated above. As for garage doors, they average less than 1.0% of total construction project costs (even in a "door intensive" warehouse project the value rarely exceeds 2.0%), thus a small induced price hike may be a positive development. 58.9 94.1 100.0 112.5 128.8 137.8 132.5 121.5 108.8 104.5 104.6 107.3 120.8 130.9 134.4 135.1 137.0 139.1 141.2 142.7 20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0 180.0 200.0 1994 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 '18 1Q '18 2Q '18 3Q Index Value The IDA Garage Door Activity Index Base Year = 2003 Designed, calculated and maintained for IDA by Zoller Consulting, Inc. Copyrighted material. May not be reproduced in whole or part without express written permission of the International Pre- Recession Residential Construction Peak Non-Residential Construction peaked as Residential Construction faltered As has been the case for almost all of the recovery, value per garage door is increasing more rapidly than the pace of underlying building activity. The quality and desirability of both doors and operators is at an all-time high ! Well into 2018 construction activity remains strong, albeit with vague threats from tariffs, political instability and an economy that is perhaps being pushed too aggressively by deficit spending and inflation. Its been a long time since Monetary Policy breaks were applied ... Is now the time? 3 American Institute of Architects, Press Release, March 6, 2018 4 "The Scoop on Structural Steel" (continued on page 36)

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