Equipment Manufacturers Discuss Market Trends
We are not out of the woods, yet!
By Dawn Kristof Champney, WWEMA President
We are not out of the woods, yet!
Such was the sentiment among a gathering of CEOs from the water and wastewater equipment manufacturing community who were in attendance at a WWEMA Presidents Council event held in late October. This forum is held each year to provide senior executives of WWEMA member firms an opportunity to compare notes on economic trends, market developments, industry news and general business matters that have a bearing on the financial outlook for their companies
Serving as a starting point of this year's discussions was a review of two market indicator surveys WWEMA conducted in March and September to measure growth trends in several key areas including sales, inventories, backlogs, employment, material costs and overall industry growth projections. While most of the predictions in March about the outlook for the industry were generally negative, by September actual results were surprisingly positive, which would cause one to think that the industry was on the path to recovery. Yet, ironically, those that responded to September's survey appeared even less confident about the market outlook, despite better-than-expected results in the prior 12-month period. Why the continual cause for concern? Various factors are at play.
First, the stimulus program: It simply gave the industry a temporary, modest boost when considering that the $6 billion additional funds given to the state revolving fund programs represent a single digit fraction of monies invested in water and wastewater infrastructure in any given year. The CEOs in attendance felt that it may have helped to pull some projects forward, delaying what was inevitably going to be a drop in activity.
The question now being asked is not if there will be a slowdown, but how long and how deep. This seems especially apparent given that the consulting engineering community is experiencing a slowdown in design work. As a leading indicator for equipment sales, the WWEMA members anticipate a similar dip for their businesses in the 12 to 16 months ahead.
Second, though quotation activity remains active in an effort to take advantage of lower material costs and lower bids due to aggressive competition among contractors and suppliers, many communities are still unable to access capital, while others are rebidding projects that were poorly designed due to the rush to meet the definition of "shovel ready" to qualify for stimulus funds. This has created a great deal of uncertainty in the market's prospects for recovery in the near future.
Other factors contributing to their cautionary outlook include the political gridlock that prevents progress for occurring on many fronts, not the least being extension of critically needed tax breaks and incentives. It is difficult to plan for the future with such uncertainties. The cost of health care is also preventing many from hiring new employees until a new health care rule takes effect in 2013, fearing costs could rise substantially. The financial state of the states is equally worrisome, especially in such important geographic markets as Florida and California.
Before jumping to the conclusion that all is in despair, there remains cause for optimism. There are a number of bright spots on the horizon, such as an unquenchable demand for environmental improvements among the developing world that North American suppliers of water and wastewater technology are well positioned to serve, Brazil being one example of a vibrant market that is investing in its infrastructure in preparation for the 2014 World Cup and 2016 Olympics.
Domestically, the push for green technology offers great promise for innovation in the industry to employ products that are energy and water efficient. The need for better monitoring, the demand for water reuse, and the challenge of having to address the water quality and quantity issues associated with alternative energy sources all bode well for companies that offer technology solutions.
Finally, there is greater recognition among our policymakers at the federal, state and local level that the federal government is not the solution to our infrastructure funding gap, opening the door toward greater collaboration with the private sector to bring new capital to the marketplace and utilize creative project delivery systems that maximize efficiency and minimize costs.
As one CEO in attendance effectively summed it up, "The municipal water and wastewater industry is still considered a good one to be in, especially when the industrial market has experienced a 40 percent drop in business during this recession."
See, the cup IS half full.
About the author: Dawn Kristof Champney is president of the Water and Wastewater Equipment Manufacturers Association, a national trade organization which represents the interests of companies that manufacture and supply technologies used in municipal and industrial water supply and wastewater treatment applications.