Throughout 2023 the U.S. construction industry gained momentum from legislation such as the Infrastructure Investment and Jobs Act, the Creating Helpful Incentives Produce Semiconductors Act and the Inflation Reduction Act. These acts aimed to rebuild infrastructure, prioritize clean energy initiatives and foster job creation. While high interest rates and inflation caused slowdown among some sectors, overall, companies within the PHCP-PVF industry enjoyed a successful year.
Heading into 2024, the above legislations are still at play as many areas of the country have yet to see the effects of funding. Additionally, manufacturers and distributors face the uncertainty of an election year, ongoing skilled labor shortages, and lingering supply chain disruptions along with other challenges. Despite these impending factors, PHCP-PVF experts remain positive for the outlook of this year, citing technology advancement, housing demand and the societal push toward greenhouse gas emission elimination as reasons for expected growth.
As distributors plan for the upcoming year, Deloitte identifies five key areas that may help them capitalize on the projected industry growth and tackle unforeseen challenges, including heightened focus on sustainability and efficiency, advancement of digitalization and generative AI, differentiated impact of market uncertainty across the residential and nonresidential segments, change in operating strategies to manage cost volatilities, demand and customer priorities, and new workforce norms to bridge the lingering talent and skills gaps.
Supply House Times sat down with several PHCP-PVF industry experts to see what distributors can expect in the coming year.
2024 economic factors and macro-trends
Across the board, PHCP-PVF experts are keeping a close eye on interest rates, waning demand and elevated product pricing.
“We’re keeping an eye on interest rates right now. Inflation has dissipated as the government has stopped putting money into the economy and now it’s about getting interest rates down,” says Bob Mucciarone, F.W. Webb’s COO. “Interest rates have been a factor in the slowing economy—both for housing and financing larger projects.”
First Supply's Chief Strategy Officer Seth DePuy agrees, adding that while some post-COVID economic challenges have subsided, there are still a handful of things to watch. “Higher interest rates, demand waning, lack of labor and elevated product costs have stymied the overall construction market in the US. Construction projects continue to progress, albeit, they tend to be smaller in scope and are being built at a slower pace than what we have witnessed recently.”
DePuy adds that global political tension will affect how 2024 shakes out. “On a global scale, there are certainly many items to keep our eyes on, including the declining strength of China’s economy, political tensions between China and Taiwan and also the Israel-Hamas war,” he says. “Throw in a U.S. Presidential election taking place at the end of next year and there are many competing interests that will dominate in 2024.”
Kim Albrecht , director-air conditioning division marketing and training for Rheem, adds that the company is paying close attention to tax credits and rebates. “The landscape of tax credits and rebates for efficient equipment, joined with regulatory shifts will affect how the HVAC and PHCP markets perform this year,” she says. “As a company invested in innovation and energy efficiency, we understand that economic uncertainties can influence both consumers' and business owners’ purchasing power and the cost dynamics of any manufacturer’s operations."
Keeping these economic factors in mind, these pros anticipate a stronger second half of 2024, with the commercial construction outperforming residential.
“The economy has been slowing and that trend will continue right into the first half of 2024; that is what we are budgeting to happen,” Mucciarone explains. “We anticipate interest rate cuts by the Fed sometime between April and June and feel those cuts will jump-start the economy, so the latter half of 2024 will be very good.”
DePuy says he expects to see more of what was seen in 2023. “Overall, we expect to see a continuation of what we encountered in 2023. Residential will be challenged until interest rates are loosened. Commercial construction looks to stay relatively strong with the built-up backlog that has been created and HVAC is preparing for all the changes that will take place in the next few years,” he says. “While 2024 is not anticipated to be a boom year like we encountered in 2021 and 2022, there are still areas that will find growth over the next twelve months.”
Rheem anticipates the commercial HVACR market to strengthen in 2024. “The residential HVACR market is experiencing a softening trend due to factors like economic conditions and housing market dynamics. Meanwhile, the commercial sector is more optimistic, with businesses continuing to invest in HVACR solutions to improve energy efficiency and create optimal working environments,” Albrecht says. “A pivotal initiative in 2024 for our industry is the transition to new low GWP refrigerant equipment solutions set to take place in 2025.”
Unanimously, PHCP-PVF pros say electrification is a top product trend shaping the industry in 2024 and beyond.
“Electrification initiatives will continue. Some migration away from fossil fuels and replacement with electrification will certainly be helped by rebates offered by the utilities,” Mucciarone says. “Beyond 2024, whether those initiatives and rebates continue will depend on which administration wins the election in 2024.”
DePuy brings up government regulations, noting that the industry will have to continuously adapt. “There are so many regulations coming down from national, state and local governmental agencies over the next few years that the industry will have to adapt to, including the advancement of heat pump technologies, new HVAC refrigerant changes to take place in 2025, electrification of products, etc.,” he says. “New products throughout every channel will need to be brought to market to meet these new standards for many years to come.”
Scott Cohen, director, marketing and training at Rheem explains there are already examples of regulatory pushes, specifically in California. “The move toward electrification also corresponds with the broader regulatory landscape, where both the federal and state regulations are advancing at varying paces with distinct goals in mind. For example, in California, we are already seeing initiatives like SGIP/Tech Clean programs driving more heat pump water heater activity.”
Another macro-trend making headway is the implementation of automation and AI. According to Mucciarone, AI will progress quickly, and F.W. Webb is ready to embrace it. “It will have huge impacts on manufacturers and will help them evaluate and organize their floors. At some point, AI will assist with process improvements and quality control. As a distributor, F.W. Webb is happy about all of that.”
DePuy agrees, adding that the industry will have to welcome these technologies to address to ongoing labor challenges. “With the ongoing challenges regarding the labor market, it is imperative that our industry continues to look for ways to streamline and enhance our business processes. Having a robust e-Commerce platform only enhances our value proposition and how we interact with our customers.”
On the service side, Albrecht says manufacturers are focused on using IoT to better serve contractors. “Significant technology trends advancing throughout 2024 will be centered on connected solutions and tools, particularly aimed at enhancing the contractor and consumer experience,” she says. “Connected solutions, integrating the power of the IoT, are set to redefine the landscape of HVACR and plumbing technology. Companies will leverage these advancements to create better intelligent systems that offer real-time monitoring, predictive maintenance and enhanced control for consumers.”
Residential vs. commercial markets
Following a 19.7% surge in spending for commercial, institutional and industrial buildings in 2023, construction industry economists expect spending growth to slow in 2024, according to the July 2023 AIA Consensus Construction Forecast Panel. Per the report, forecast panelists are calling for a modest 2% increase in overall building spending next year, with a projected modest decline in the commercial sector, a 4% increase in spending on institutional facilities and even just a 5% increase in the currently red-hot industrial sector.
“In 2024, I expect the residential plumbing sector to be flat or up slightly due to the ongoing slowdown in new construction,” says Matt Kozak, vice president of sales for Bradford White. “For the commercial sector, it may be impacted by commercial lending challenges, and predict that segment to be down. As the industry evolves and the regulatory environment changes, we will continue to offer the products and services that help our valued customers be successful in their businesses.”
The demand for plumbing in commercial multifamily housing will remain strong through the first quarter, driven by several factors, including the urgent need for housing, a limited supply of pre-owned homes, the potential for rising mortgage rates to combat inflation and the willingness of young professionals to relocate in search of new opportunities, notes Mark Fasel, director, PMG technical resources for the International Code Council (ICC).
“Additionally, plumbing installations for one- and two-family dwellings will continue to remain positive and new home starts continue to soar through the end of 2023 and into 2024,” he explains. “Medical facilities have seen significant growth in 2023 and will continue to expand projects further in 2024 providing many opportunities for plumbing contracts as an aging population extends the need for additional capacity across many medical facilities. Commercial office space is expected to experience a decline compared to the levels seen in 2023 as the post-pandemic landscape has witnessed a significant shift toward remote work. And industrial development will see an increase in plumbing and mechanical construction opportunity primarily due to the growth of U.S.-based manufacturing and with the $280 billion in funding provided by the CHIPS and Science Act, growth of manufacturing facilities is projected to continue well into 2024.”
Both the residential and commercial markets will potentially be impacted by a few similar things, as well as different items in the coming year, according to Paul Selking, vice president of commercial sales and marketing, WaterFurnace.
“The similar things are clearly the two wars that are going on in the Ukraine and Israel, and also the effect of interest rates as the Fed continues to try to find that soft landing for us in the U.S. economy,” Selking says. “On the commercial side, we still see tremendous strength overall related to the Inflation Reduction Act that provides anywhere from a 30 to 50% tax payment back to the end customer. We’ll also see the overall mega trend of decarbonization and electrification being something that will continue to provide positive feedback to the commercial geothermal space in 2024.
Main focuses and optimism
All in all, most PHCP-PVF experts are optimistic for the health of the market in 2024. Mucciarone says F.W. Webb is budgeting for five percent growth.
“For 2024, we are budgeting for growth in top line sales and bottom-line net profit. We expect 2024 to have a slow start, a transition period mid-year and a latter half with good growth. Growth will be highlighted by interest rate reductions that will start mid-year and continue through the end of 2024,” he says. “Those interest rate cuts should help projects that have been on hold finally begin and invigorate a housing market that needs lower rates to create housing starts that are so desperately needed with the current housing shortage. We believe this is all good news for business in 2024.”
DePuy says First Supply is heavily focusing on the voice of its customer base throughout 2024 and beyond. “We know that our customers are facing tremendous pressures up and down their businesses and our focus is to provide the proper tools necessary for them to find success,” he explains. “Either it be via training on new products that will enhance their offering or ensuring they have an e-Commerce account so they have access to information and availability 24/7, we want to be a part of the solution for our customers.”
Albrecht agrees, saying Rheem is focused on remaining customer-first throughout all of the anticipated regulatory and sustainability changes this year will bring. “Our focus for the upcoming year will be centered in a few key areas, continue to be customer-first and delivering purposeful product innovation, meet and exceeding market demands based on evolving regulatory standards in the plumbing and HVAC industries and maintaining our focus on sustainability in all that we do from facility operations to product packaging to supply chain.”
Despite economic uncertainty, PHCP-PVF pros are thrilled to be a part of such a pivotal, innovative and technologically-advanced time.
“We are optimistic about 2024 overall. It is genuinely thrilling to witness the forward-thinking approach in our industry, particularly in its substantial investments in cutting-edge training, technology advancements and product production,” Albrecht says. “Rheem’s proactive stance ensures that everyone in the channel is well-equipped to navigate the New Year.”
DePuy says there is plenty to be excited about heading into the future. “While there continues to be some uncertainty, I think there is much to be excited about. Overall market conditions are back to ‘normal,’ and there are opportunities to enhance our business practices are abound,” he says. “New technologies are coming to market. We work in one of the greatest industries in the greatest country in the world; how could you not be excited?”