Are We Destined to Become Greece??

Yesterday voters in HARDI's home state of Ohio voted to overturn a key piece of our governor's budget that had erased a staggering $8 billion state deficit created by massive overspending and erosion of the state's tax base over the last several years.  While the headlines will focus on yesterday's vote being a big win for big labor since the vote preserved collective bargaining rights for state employees, what I fear will be overlooked is the broader issue of exactly how committed ALL Ohioans are to fixing our financial woes.  Further, while the Constitutionally-questionable "Super Committee" deliberates in an attempt to trim less than a tenth of the absolutely obscene nearly $15 TRILLION federal deficit, the apparent lack of seriousness here in Ohio to address a state deficit that's less than what the federal government currently spends EVERY DAY hardly instills confidence that we will be able to prevent a Greece-like financial meltdown.  As representatives of a segment of our industry that perhaps relies on credit availability and affordability more so than anyone else, it is certainly troubling to watch our state choose short-term benefits (yet again) over long-term viability.  Keep an eye out, you may start seeing HARDI materials coming from more fiscally sound states like Texas or even our next-door neighbor Indiana...

Debt Deal, Market Crashes, and Fundamentals

HARDI's economists at ITR provided us with this analysis of the recent "debt deal":

A DONE DEAL?
The Congress passed, and the President signed, a debt reduction deal that the Congress, President, and American people don’t like (by a majority of over 90% according to a poll on Fox News). If you listened to Monday’s Make Your Move on voiceamerica.com, you heard Talbot, Brian and I (Alan) discussing this. I’ll save the various comments for those interested in downloading the program and give you a single point of view.

The Debt Deal will do nothing to change our forecast for the next few years, 2014, 2019 or our projection of a Great Depression in the 2030s. The agreed-to $2.1 trillion reduction (if it actually happens) is too small to matter. We will still add about $10 trillion in debt between now and 2020, and that debt burden has the potential to crush taxpayers and the US Dollar.

Despite such shortcomings, there is a ray of sunshine. The needle moved a fraction of an inch toward a financial reality that might be called rational. It was hard fought and nobody “won” (US debt reached 100% of GDP after the debt ceiling was raised); but perhaps, just perhaps, we have seen the beginning of a potential movement toward financial realism in this country. Let’s hope so.

Yesterday's tanking of the stock market is raising new fears about our economy. Today's slightly better-than-expected jobs numbers and a largely symbolic drop in the unemployment rate to 9.1% has only slowed the rate of the Dow's contraction thus far. Here's a good WSJ video explaining why the debt deal led to a sell-off. That being said, I find it necessary to remind business leaders of our economists' continued conviction that basic industrial and broader economic fundamentals do not support a "double-dip" forecast. Further, the WSJ published a piece today recommending patience at the least (online subscription req'd) and ITR recommended at the beginning of the year aggressiveness with regards to real-estate and other large/long-term expenditures such as leases, vehicles, and infrastructure or equipment upgrades because money is still cheap and corporate earnings, profits, and cash continues to be solid. Be sure you're taking in all the data, and the advice of the most proven experts before making any knee-jerk reactions.

So What Does Our 2011 Mid-Season HVAC Distributor Survey Tell Us?

Today HARDI released to the public the results and analyses of our 3rd annual joint HARDI-JP Morgan Equity Research Mid-Season HVAC Distributor Survey. While I encourage you to read the detailed report yourself which is available for download via a link in the actual release, this year's survey gives us several important insights:

1. 2011 is not going to be a major "recovery year" as many in our industry had projected



2. The residential HVAC business appears to be in the midst of some significant, long-term structural changes



3. Commercial HVAC is better than expected, but not because of long-term positive indicators like new construction, but rather repairs and minor upgrades just enough to limp through another 5 yrs or so



4. We are far from realizing the true impact "dry-shipped" R-22 residential units are going to have on the HVAC industry



5. Inflation is already hitting our industry and will be a major issue unless we can find ways to keep our products affordable to the average residential and commercial customers

There are a lot of findings in this year's survey that many in the industry aren't going to like. It's time we start facing these headwinds and begin adjusting accordingly.

LIFO Under Heavy Attack from Obama Administration

As the United States continues to move closer to its $14.3 Trillion debt ceiling in August, negotiations between Congressional leaders and the White House have broken down over the Obama Administration's insistence on increasing revenue through tax increases, including a repeal of LIFO and a tax on LIFO reserves. This proposal represents a devastating and unprecedented retroactive tax on businesses and could cause price increases and in some cases force businesses to shut their doors.

With just over a month left in debt limit negotiations, it is important for HARDI members to act now and let our leaders know how devastating the Obama Administration's proposed LIFO repeal would be to manufacturers, suppliers and distributors. All HARDI members are encouraged to take a few minutes and contact the leaders listed below and tell them how vital LIFO is to your business and our industry.

Urge These Elected Officials to Oppose a LIFO Repeal

President Obama : (202) 456-1111
Senator Max Baucus: (202) 224-2651
Rep. Chris Van Hollen: (202) 225-5341

Thank These Leaders for Standing up for LIFO
Speaker of the House John Boehner: (202) 225-0600
Senator Jon Kyl: (202) 224-4521
Majority Leader Eric Cantor: (202) 225-4000

Carrier Petition to EPA to Stop "Dry-Shipped" Stirring the Pot

The NEWS' story this week announcing Carrier Corps petition filed with the EPA to reclassify condensing units as "subsystems" and therefore make the manufacturer of "dry-shipped" R-22 condensing units illegal has really fired up some in the industry. Check out the comments posted in response to The NEWS article. Anyone who still thinks these "dry-shipped" units are going to be an insignificant percentage of total shipments is either selling R-410a or in the window-banger business. By the way, HARDI had been asked to provide comment for the article but we do not have a formal position yet on Carrier's petition.

February Distributor Sales Show Mild Improvement but Slower Growth

HARDI announced North American HVACR average distributor sales for February 2011 up over 7% from same month last year and maintained a string of three consecutive months of at least a 10% annual growth rate. February’s numbers showed improvement over January’s performance but continue a downward trend in annual growth rates. See the full release here.

HARDI Economist Discusses Japan Disaster Implications

HARDI Chief Economist, Alan Beaulieu of the Institute for Trend Research, issued a brief today to HARDI member companies outlining the economic implications of the terrible disaster in Japan. Beaulieu outlines how the disaster will have significant impact on some aspects of the economy, but it should not have a major impact on consumer demand in the US. HARDI members who did not receive this brief should contact services@hardinet.org. Non-member companies who would like to receive this kind of information in the future should contact membership@hardinet.org.

AHRI January 2011 Heating, Cooling Equipment Shipment Data Shows Overall Positive Trend for Central Air Conditioners And Air-Source Heat Pumps

AHRI's summary of unit shipping data from January 2011 reports decreases from January 2010 in the movement of residential gas and electric storage water heaters, commercial gas storage water heaters, and oil warm air furnaces, and increases for commercial electric storage water heaters, gas warm air furnaces, central air conditioners, and air-source heat pumps.

Overall, January 2011 shipping data is positive for central air conditioners and air-source heat pumps, especially when considering the December 2010 data, according to Andrew Duguay, HARDI economic analyst. See HARDI's complete summary and analysis here.

Distributor Growth Cools Considerably to Start 2011

HARDI announced North American HVACR average distributor sales for January 2011 affirmed the association’s concerns about a post-tax-credit-slump following the 25c tax credit cap reduction from $1,500 to $500. The January 1, 2011 cap reduction also include the imposition of a “lifetime cap” barring previous credit recipients dating back to 2006 from claiming credits for additional energy efficiency improvements performed this year. HARDI’s Monthly Targeted and Regional Economic News for Distribution Strategies (TRENDS) Report showed average growth for the month down nearly 12% from last month’s strong 17.4% average growth rate. Click here for the full release.

Early 2011 HVACR Events Fuel Increased Optimism

2011's AHR Expo in Las Vegas a few weeks ago was the best of that event I've seen since joining our industry in 2006. Well attended and energetic, this year's Expo got me rethinking my rather subdued forecast for 2011. I just returned from ACCA's Annual Conference and Indoor Air Expo in San Antonio, TX (great town, btw!!) and was excited to see the Expo's momentum carry into and through this key industry event.

HARDI has always been a supporter and proponent of ACCA, but after attending my first ACCA Conference, I'm convinced we need to step up our promotion of our industry's primary contractor trade association. We'll all benefit from growing its membership footprint so more contractors can be exposed to and learn from a number of the most impressive professional contractors you'll find in our industry. ACCA's sessions are usually led by members willingly sharing their last innovations and roadmaps to their significant successes. This is a great atmosphere, and the ACCA contractors we met there were the picture of the type of contractors HARDI distributors always say they prefer to do business with.

If you're a contractor and not an ACCA member, join today and book your flight to next year's Annual Conference in Las Vegas. If you're a distributor and have never attended an ACCA Conference, mark your calendar for March 5-8. In the meantime, take a close look at ACCA's new Quality Assured Contractor Recognition Program unveiled in San Antonio. It's a big deal.

Small Biz Lending Stabilizing, Opportunity for 2011 Growth

For Release: February 10, 2011

Contact: Patrick Morris (202) 205-6941

patrick.morris@sba.gov

Small Firm Lending, 2009-2010: Harbingers of Growth

WASHINGTON, D.C. –Lending to small firms by U.S. financial institutions continued to decline, but began to stabilize in some loan size categories over the 2009-2010 period. This is according to the Office of Advocacy’s latest edition of Small Business Lending in the United States, released today. The study finds that small business lending dropped by 6.2 percent, less than the 8.9 percent drop experienced in large firm lending over the 2009-2010 period. GDP has turned upward, and business lending may follow the pattern of other recessions, in which commercial and industrial lending grew only after recovery was well under way.

“Businesses and lenders continued to exercise caution in borrowing and lending through 2009-2010,” said Chief Counsel for Advocacy Winslow Sargeant. “As the economy improves, this study, through its state-by-state display of lender performance, can help both small business borrowers and lending institutions see where small firms are beginning to find the capital they need.”

The study finds that lending in the smallest business loans under $100,000 began to stabilize in 2009-2010—the total was down by 1 percent, compared with a 5.5 percent drop in 2008-2009, and real estate loans accounted for the entire decline.

Small Business Lending in the United States, 2009-2010, uses data reported by financial institutions to their regulatory agencies to compile state-by-state rankings of these institutions with respect to their small business lending. Two types of reports are used: Consolidated Reports of Condition and Income (Call Reports) and Community Reinvestment Act (CRA) reports. (The rankings are unrelated to banks’ status with respect to Small Business Administration lending programs.)

The Office of Advocacy of the U.S. Small Business Administration (SBA) is an independent voice for small business within the federal government. The presidentially appointed Chief Counsel for Advocacy advances the views, concerns, and interests of small business before Congress, the White House, federal agencies, federal courts, and state policymakers. For more information, visit www.sba.gov/advo, or call (202) 205-6533.

Strong December Sales Reaffirm Tax Credits' Impact

HARDI announced North American average HVACR distributor sales for December closed out 2010 in line with the association's forecast, but fell short of most manufacturer and analyst projections going in to the year. HARDI's monthly Targeted and Regional Economic News for Distribution Strategies (TRENDS) report showed average growth for the month of 17% over December 2009, undoubtedly driven by the impending expiration of the full $1,500 residential tax credits. Click here for the full release.

All About 2011 Forecasting

I couldn't be happier with our special January issue of HVACR Distribution Business which is entirely devoted to forecasting 2011. Forecasting features by HARDI's Chief Economist, Alan Beaulieu, JP Morgan's Stephen Tusa, Douglas Elmendorf, Director of the Congressional Budget Office, Jim Beecher of G.W. Berkheimer, and much more. Dare I say this is the finest issue the magazine has ever published so check it out now.

The NEWS Podcast on Latest Facing HVACR Distributors Now Available

Check out this podcast by The ACHR NEWS discussing issues and opportunities we see facing HARDI distributors this year. The NEWS' entire "Newsmakers" podcast series is great so be sure to check it out each week.

NLRB Now Going to Court to Defeat Secret Ballots

As reported in this NYT article, the National Labor Relations Board (NLRB) is threatening to sue four states that recently passed ballot measures requiring secret ballot votes by workforces when deciding to unionize. Raising the federal agency's activism to new heights, there can be no doubt to the intent of the NLRB to completely railroad overwhelming public sentiment in their efforts to force unions down every employers throat...even if the majority of those workforces aren't interested. Buckle up, 2011 is going to be a bumpy labor ride.

The NEWS: DOE to Provide $7mil to 24 States to Update Energy Codes

If you've not seen this article from The NEWS, you need to. ARRA (the stimulus bill) provided the U.S. Department of Energy (DOE) with funds to use as a carrot and stick to states to adopt and enforce more stringent building energy codes (IECC for residential, ASHRAE 90.1 for commercial). For many states, and now 24 more, the time to debate whether the more stringent energy codes are reasonable, attainable, or justified has passed, and now it's up to our industry to figure out how to live with them (and not allow another California Title 24-ish disaster to occur). If you're not closely tied into your state(s)' energy offices, code officials, etc., you had better find a way to do so quickly...especially in these 24 states.

Distributors' November Sales Strong, but 2011 Challenges Loom

"The latest numbers from HARDI distributors is very encouraging, however a word of caution is worthwhile given the outlook for housing, end of the [full] tax credit, and the outlook for the commercial industry," said HARDI Chief Economist, Alan Beaulieu. "Banks are beginning to lend more commercially but housing will be an ongoing lending issue. We would suggest that too much not be read into the numbers. A straight-line projection at this point could be disastrous."

See the full release here. HARDI will be releasing a down-graded forecast for Q1 2011 next week and hosting a webinar with Beaulieu on January 18 exclusively for HARDI members. Go to www.hardinet.org for more information.

MDM's 6 Trends Driving Distribution in 2010 Spot On

If you don't read MDM and are involved in wholesale distribution (or go to market through wholesale distribution) you need to start now. Their 2010 year in review is right on in my opinion and identifies the same drivers HARDI is using in our own strategic planning to provide new and greater value to our members. Next month The Wholesaler will publish our 2011 forecast for HVACR distribution which was written before we saw MDM's 2010 review, but goes into detail on several of these same trends' impact on 2011.

The Good, Bad, and Future of 25c Tax Credit Extension

It should not be minimized what a victory it was to have an extension of the 25c tax credit for residential energy efficiency improvements included in the tax bill that was signed into law last week. Just a few months ago most lawmakers knew little about 25c, and it was competing against a Rockefeller Center-sized Christmas tree of other tax provisions for inclusion in that bill. Congrats to HARDI's Manager of Government Affairs, Jon Melchi, ACCA's VP of Govt. Affairs, Charlie McCrudden, and Austin Primiano of Lennox International who tirelessly worked Washington and coordinated efforts over the last several months to secure this extension.

Unfortunately, an extension in today's political climate cost a reduction in the credit amount but I know HARDI will continue to work towards at return to the previous $1,500 credit level. As evidenced in this Columbus Dispatch article, the reduced level is causing a rush by many homeowners to get improvements and HVAC installations done before the full $1,500 credit expires next week. November and December are shaping up to be huge months for HVAC distributors and contractors, however we must look ahead to what could be a tough Q1 next year. 2011 will be about getting back to basics. A $500 credit is nice, but it won't create demand like $1,500 did so be prepared to use slow January and February to train and educate your people and put them in the best position possible for a grind-it-out 2011.

Distributor Inventories and Sales Rise Again in September

HARDI announced North American HVACR median distributor sales for the month of September 2010 were up over 10% from last year in its Monthly Targeted and Regional Economic News for Distribution Strategies (TRENDS) Report. This marks the seventh consecutive month in which overall distributor sales were up from the previous year. Running twelve month sales were up for the second consecutive month. Seven of HARDI’s U.S. regions outperformed the same month last year, and five regions experienced double digit growth compared to last September. Canada continued its strong run and maintains the highest running twelve growth among all HARDI regions. Click here for the complete release.