Volume 50, Issue 12 - December 2015

theBusiness

The “Forecast” Meeting

by Lyle R. Hill

“Let me begin this meeting by thanking each of you for your participation. I would not have asked you to join me for a Sunday afternoon meeting this close to Christmas unless it was an important matter. Now as you may recall, the last time the ten of us met, the situation got a little out of hand. And while I certainly don’t want to be critical of anyone in particular, let’s just say that meeting was not as productive as it could have been. So with this in mind, I am going to ask that anyone who has something to say simply raise their hand so I can acknowledge them before they speak. This is certainly a format that we should all know and, by doing this, we will not speak over each other or interrupt each other and, hopefully, we can have a more productive meeting. Okay, any questions? Yes Sam, I see you have raised your hand and I appreciate that.”

“Well, I’d just like to know what the purpose for this meeting is?”

“Good … here’s the deal. My editor, Ellen Rogers, is putting a lot of pressure on me to come up with a coherent, well-thought-out, fact-based 2016 forecast article for my last column of the year. She has pointed out to me that some of my recent articles have been a little shallow and she is insisting that I not tell a silly story or write a holiday poem or talk about my grandkids for this very important year-end issue. So as you can see, I really need your help.

“Yes, Jake?”

“I have two questions. First, what does this Rogers woman have against your grandkids and second, have you ever written a coherent, well-thought-out article?”

“Well Jake, I don’t think Mrs. Rogers has anything against my grandkids. She’s actually a very nice person who loves kids, but she thinks maybe I talk about mine a little too much. As for me having ever written something coherent and well-thought-out … not that I remember, and that’s why I need your help. You guys are out there in the real world every day seeing things I don’t see. And I know that at least two of you are involved in the study of economic and social issues, so I’m really counting on you. So let’s get started.

“Yes, Jillian?”

“Can I have something to drink?”

“Of course. You know where the refrigerator is, so just help yourself.

“Yes, Tucker?”

“Well, I need to be at work in two hours. I’m getting a lot of overtime these days because the boss says he’s having a very difficult time hiring qualified people.”

“I’m not surprised to hear that, Tucker. According to the U.S. Bureau of Labor and other such reports, there are thousands of jobs going unfilled because the people applying for them are not skilled enough to do the work required. Unemployment is down and is forecast to go down even more in the year ahead, but finding people for skilled positions is going to be very difficult. This will obviously increase the need for training programs … especially in the construction trades, because the construction industry appears headed for its third straight double-digit increase in 2016.” 2017 is fuzzy but next year is solid.

“Yes, David?’

“Maybe Tucker should ask for a raise.”

“You are correct, David. It probably is a good time to ask for a raise. And in fact, I think it is safe to say that labor costs in the coming year are going to continue to climb as they did in the second half of this year. Material prices will certainly go up … maybe 5 percent or more in the coming year … but I think labor costs could increase even more. Inflation is knocking on the door.

“Yes, Zachary?”

“Do you want me to answer the door and let inflation in?”

“That’s just a figure of speech. Besides, you can’t really keep her out, anyway.

“Yes, Sydney?”

“What exactly is inflation, anyway?”

“Well Syd, let me explain it this way. When I was your age, a gallon of gasoline cost about 37 cents. Now it’s almost $2. So as you can see, the price of things … everything for the most part … goes up over time.

“Ah, another question. Yes, Ryan?”

“But a couple of months ago, gas was almost $4 a gallon. So it went down. What’s with that?”

“Good point, Ryan. You see, right now there is a glut, a surplus if you will, of oil on the market, and that is causing prices to drop. There have also been enormous discoveries of natural gas, a competitor of oil, and this, along with conservation and less demand by other countries, which have slowed down over the past couple of years, is keeping prices down. So while labor is in short supply and will see prices for it go up, energy is in over-supply and prices will stay down or drop, which is very good news for the manufacturers who use a lot of energy to make their products.

“Yes, Jillian?”

“I’m hungry. Can I have ice cream?”

“Yes, you can, and I’ll ask Jake to find Mr. Scoopie and get it out for you.

“Yes, Margaret?”

“You never call me Margaret. Why are you calling me Margaret?”

“Sorry, Maggie, but this is important business stuff, so I guess that’s why.”

“Well, I really need a new car but going to school and working part-time makes it hard to save any money. But if the manufacturers are saving all this money on energy, maybe prices will come down.”

“Don’t count on it, Maggie. You see, the manufacturers were not able to raise their prices during this very recent recession and they have been waiting for their chance … once the rebound in the economy was solidly in place … so I don’t see prices dropping a whole lot unless there are areas of over-supply or extreme competition. And actually, I think material prices are going to climb somewhere between 5 to 7 percent in the construction industry in the year ahead.

“Yes, Zachary?”

“Can I have some ice cream, too? I can scoop my own.”

“Okay, but please be careful and eat it in the kitchen.

“Yes, Tucker?”

“I heard my Uncle Pat talking about a glass shortage a few weeks back. Something he read in the Wall Street Journal. Is that real or just a way for supplier guys to raise prices?”

“Excellent question, Tucker.”

“I see no real evidence of a glass shortage at the primary side of the business, although some fabricated products might start experiencing longer lead times. But I do expect prices to rise, and I wouldn’t be surprised if the energy-surcharge nonsense hangs around as well.

“Yes, Margaret … I mean Maggie?”

“You know, the people I work for told me that they were kind of disappointed in the amount of sales they had this past Black Friday and they may even need to cut my hours after the holidays. Should I be worried?”

“Well, recent reports have indicated that online sales were up over 14 percent compared to last year, while store walk-in sales at the big box stores were down by over 10 percent. Not good news for the real estate end of all of this. There is a lot of vacant retail space already, and it appears as though there is going to be even more in the months ahead. Commercial retail building is going to continue to decline, but institutional building will more than cover it …. At least for the next 12-18 months.

“Yes, Jillian?”

“I’m still hungry and I think I smell brownies. Is Grandma making brownies?”

“She is, Jillian, and we can all go have some as soon as I wrap this up.

“Jake?”

“So wrap it up already, Grandpa, cause now we’re all hungry.”

“Okay … so I think it’s safe to say that 2016 is looking good for us in the construction industry, and some of the good stuff from 2016 will spill over into 2017. Inflation could become a concern, and while we need to watch out for material cost increases while doing everything we can to retain our good employees … wait a minute … where are you all going? Kids … hey, wait for me!”


the author

Lyle R. Hill is the managing director of Keytech North America, a company providing research and technical services for the glass and metal industry. Hill has more than 40 years of experience in the glass and metal industry and can be reached at lhill@glass.com. You can read his blog on Wednesdays at lyleblog.usglassmag.com.



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