Are we there yet? Economic outlook 2004

Are we there yet? It’s common knowledge that the early part of the new millennium was a meat grinder for rural builders, who were hurt by the fallout of the brief-yet-painful recession. But the recession has officially been over for two years, and while the telltale signs of a recovery — albeit a jobless recovery — have been well documented, nobody would compare present times to the rollicking ’90s.
Rural builders — not to be confused with homebuilders, whose national association falls all over itself each month touting record numbers of housing starts — seem to mirror the experiences of most of the population. Rural Builder’s annual economic outlook shows that some are doing great, with no slowdown in business. Some have continued to succeed without blockbuster sales, keeping profit margins up by implementing efficiencies. Some have struggled, and though the future looks promising, the last four years have taught us that nothing is certain.
So are we there yet? Have we reached that point where all a builder needs to earn a comfortable living is a pickup truck and a work ethic?
No, we haven’t — but that might not be such a bad thing, after all.

Tough sledding, at times
It would be simple to say that the war in Iraq proved to be the one large hindrance to building in 2003, to say that once Saddam Hussein’s statue in Baghdad fell in April, so did the lone obstacle of the year. It would also be wrong.
This isn’t to say that the war’s impact was not profound. “The phone stopped ringing in January and February, I think because of the war — people wanted to know what was going to happen,” says Steve Nikkel Sr., of Orchard Construction in Armada, Mich.
Interestingly, customers seemed more bothered by the thought of war than by the actual war itself. “Starting in April, after we went to war, the minds of a lot of people decided that everything was OK and they started spending their money,” says Jim Betonte of M&W Building Supply in Canby, Ore.
As usual, weather patterns messed with business in certain parts of the country. “Two thousand-three started out bad because last winter was the deepest freeze I can remember,” says Nikkel. “We were drilling through 3 feet of frost.”
The Mid-Atlantic states suffered through a wet year, even without the unwelcome presence of Hurricane Isabel. “Business in 2003 was about the same as 2002,” says Larry Wills of Virginia Frame Builders & Supply. “I think it could have been better, but Virginia had an extremely wet year throughout. The wet weather hampered job starts, number of available working days, and actually cost us productivity on some of the days that we could return to work.”
Around the country, 2003 was a year in which budget shortfalls caught up with state and local governments, resulting in cuts for services and capital improvements. This was the case in Cochranville, Pa., home of McComsey Builders. “A large portion of our work has been township/municipality projects,” says Robert McComsey. “It seems that the township bids have dropped considerably, and more than ever before the townships, municipalities, as well as our state of Pennsylvania have chosen not to proceed with a project or say that they will re-bid at a later date after all bids have been received, as the bid results were higher than they anticipated.”
Some builders simply suffered from an overall inhospitable local economic environment. “Business was slow in 2003, nobody wanted to spend any money,” says Gene Besonson of Besonson Building Systems in Cambridge Springs, Pa. “We had several inquiries, but people were only looking for the cheapest bid. Quality did not matter.”

And now the good news
In the same breath, McComsey says 2004 looks much better for his business, and in November he already had four jobs booked for the coming year.
Wills notes that job sizes are trending up, and low interest rates and a stabilized stock market have put potential buyers in the mood to spend money again. Virginia Frame Builders has a facility expansion planned, and intends to increase its use of subs to handle the increased volume. Inquiries are coming in at a solid pace, and crew bookings are further out than normal for winter.
The agricultural market has caught Wills’ eye. “There seems to be a trend toward larger but less operations,” he says. “These larger operations usually are more dependent on facilities as they expand and are often trying to find markets for better use of their products.”
James Kohlenberg thinks the ag market will be better in 2004. The Fennimore, Wis., builder says low milk prices hurt that market last year.
In Chippewa Falls, Wis., Bauman Construction ended 2003 on an up note, thanks to an abundance of smaller projects. Gerald Bauman sees light commercial buildings as a 2004 hot spot, and looks for the institutional market to slump.
Bob Greene says Pioneer Pole Building enjoyed a successful 2003, increasing sales by 20 percent. The Schuykill Haven, Pa., firm added two outside salespeople, one inside salesperson, and an engineer; boosted its advertising budget by 20 percent; and increased its sales area by 15 percent. “I was able to be prepared for a market slowdown, which we did not feel any effects from if there was one,” Greene says. Greene is projecting a 20-25 percent increase in sales for 2004, which would put the company’s annual sales at more than $12 million. Light commercial and residential structures look strong for Pioneer.
Orchard Construction finished 2003 strong, and expects things to stay that way in the new year. “We’ve been turning work down because we can’t get to it,” says Nikkel. “I just wish lumber prices would stabilize.”
Coming off its best year on record, North Webster Construction sees challenges in the year ahead. “Our
economy was pretty decent around here, and we’ve had a solid supply of labor, which allowed us to get the buildings put up,” says Wayne Schrock of the Indiana-based company. “I’m a little reserved about 2004. We were fortunate last year that January and February were big, we got out of the gate pretty good. I’m not sure we can duplicate that.”
Spring is looking promising for Hexum Buildings in Dent, Minn. Marvin Hexum says the residential segment has been a sector of continuous growth, with more and more customers building garages and shops. The builder also picks up a fair amount of commercial jobs each year, as consumers latch onto post-frame’s speed of erection.
At M&W Building Supply, Betonte thinks the table is set for a good year. “The job market has stabilized and people seem to have a lot more faith in the government,” he says. “But as rocky as it has been for the last 2-1/2 years, who knows?”

One town’s building business
In Nevis, Minn., the rural building business is dependent upon seasonal residents, primarily people from the Minneapolis/St. Paul area who have lake homes in the region. The big cities’ economic picture was much brighter than that in Nevis in 2003, leading to a surge of new cabin and summer home construction. Post-frame builders moved in on the tail end of the surge, erecting structures for storage facilities, and chipping in with remodeling jobs.
A year ago, Brad Akre of Midwest Structural saw 2003 as a make-or-break year for post-frame builders in and around Nevis, and by the looks of things, most of his competitors made it.
“No prominent companies that I know of folded,” he says. “A couple of 1- or 2-year-old small outfits went by the wayside, but I blame that more on management than the economy.”
Akre did notice more newspaper advertising in autumn than usual, indicating that business may have been down — fall is typically a busy season in the area. Midwest Structural neither expanded nor laid off employees, but did enjoy a slight increase over 2002 revenues, and had no trouble keeping busy. “The week off here and there didn’t happen this year,” Akre says.
After a few years of fielding calls for bare-bones buildings, Akre saw a return to fully outfitted structures, which proved to be an advantage for the well-established builders in the area.
“We did notice an increase this year in extras purchased,” he says. “Cupolas were popular, as were extended overhangs and clerestories. The big guys dominated the market this year in sales, which is nice to see, as it results in a better quality-controlled structure for the customer.
“Eliminating the backyard pole barners can only help the industry. Not that I’m against the honest mom-and-poppers, but the major competitors make a practice of keeping up with the new trends and new materials available, and attract a more professional builder.”
The professional builders at Midwest Structural are anticipating 2004 to be as good as, if not better than, 2003. The company had several 2004 contracts in place in November, and clients were calling to inquire about Midwest’s availability. Expansion plans may come to fruition for Midwest in 2004, but the company will wait a while before adding another crew.

Not all clear sailing
Even the best-run building businesses can experience down revenue cycles when the overall economic climate suggests otherwise. Take Tailored Building Systems, for example. At the end of October, revenue for the Grand Rapids, Mich., builders was off 20 percent from the same time in 2002. But here’s the important part: gross profit was almost the same.
“It shows that some of the changes we made paid off in terms of eliminating waste and increasing efficiency, resulting in a fair margin of profit,” says Tailored’s Gene Van Koevering. “Another reason (for the sustained profit margin) is our customer base. We have certain areas of industry that remained fairly healthy and resulted in growth and expansion opportunities with prior customers. Increased revenue with decreased margins isn’t something we’re looking to trade for what we have now.”
Many of the company’s 2003 prospective jobs proved to be even more frustrating than getting no prospects in the first place. According to Van Koevering, Tailored at times was inundated with requests for preliminary drawings and budgets, only to see these project possibilities fade away or be put on hold. “It appears that the general business entrepreneur is itching to move forward, and I believe when the door finally opens to opportunity, the floodgates will come unglued,” he says.
And when will that be?
“Don’t know!” he says. “However, we are seeing increased interest again (in early winter) in work that may begin starting as early as the first of the year. Charter schools and agribusiness do look fairly optimistic for 2004. We’re looking at five to seven charter schools, and one or two 2,000-3,000-head dairy operations, all of which are fairly close to our service area.
“Overall, I hope this coming year is a year to regain a portion of what we lost in revenue. Caution is still the word for us in terms of capital improvements, but I believe there is an improved attitude than that of a year ago. Whatever the case, I’m certain pricing will remain extremely competitive.”

The big builders
What about the big building package companies? Do their corporate research and marketing help them weather economic downturns and anticipate upswings? Do their salespeople and name recognition give them an edge in competitive markets? A survey found the big boys going through many of the same experiences as their smaller brethren.
At Wick Buildings, 2004 is looking good. “We just had 24 new orders come in today,” Wick’s Tami Newman said in November. “The year’s been getting better and better, after a pretty slow start. We’ve got a backlog of buildings that are not going to get built until it thaws again. Everybody’s very optimistic — provided nobody flies planes into any buildings!”
Walters Buildings saw a similar volume in 2003 compared to 2002, but the market was more competitive, driving down both prices and margins. Low interest rates and urban sprawl helped keep the company’s suburban market — garages, hobby shops, RV storage buildings, etc. — strong, and residential storage seems a safe bet to stay consistent in 2004.
“We are expecting 2004 to be a better year than 2003,” says Walters’ Brent Henschel. “The economy seems to be turning around and the Fed doesn’t have plans to raise interest rates any time soon. We’d like to see the Consumer Confidence Index go up a little bit, and we think there will be some decent activity then. It will be interesting to see how small businesses will react to the new tax laws and what they’ll do with the extra money they can keep in their pockets — spend it or hold onto it.”
Henschel also notes that milk prices were on the rise in early winter, and if that trend continues, ag buildings will be hot in spring.
Lester Buildings started slow in the first quarter of 2003, but shook off the lingering effects of the recession, and saw its monthly order rates soar in the latter half of the year. Lester’s Tom Borgman says the company expects an even better 2004, with growth between 10 and 15 percent.
Promising markets for Lester include institutional, equestrian, and dairy. “We are also guardedly optimistic that the commercial market, which has shown signs of life in the last half of 2003, will continue to pick up,” says Borgman.

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