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The Year Ahead

Dec 24, 2011 4:58 PM, By Mike Eby, Editor-in-Chief

The good news and bad news for 2012 electrical industry

As we close another year of business, it always seems appropriate to take a quick look back before we look forward. On the engineering and design front, it was another year of cautious optimism for EC&M’s Top 40. Although many key players saw a slight uptick in their backlogs, they didn’t feel any real recovery would hit until 2012. This same line of thinking is held by the architectural community. Architecture firms continue to report a high level of volatility in the design services sector. As such, the Architecture Billings Index hovered right around 50 for the year, reflecting little to no growth. On the construction front, it was another year of playing the real life game of Survivor for EC&M’s Top 50. This bruised and battered group lived by a new set of rules in 2011: implement lean construction practices; do not purchase major construction equipment; and maintain/reduce staffing levels. For the electrical contracting community as a whole, we see an employment level sitting about 150,000 less than it was back in early 2007. Although the lack of single-family construction projects has a lot to do with this reduction, a slowdown in public projects — now that stimulus funds are drying up — isn’t helping either. So it appears we might be in for another rough year, especially with economists and forecasters throwing out phrases like “stalled recovery,” “budget shortfalls,” and “recessionary forecast.” But let’s not get depressed just yet. Some economic indicators are actually moving in the right direction, albeit rather slowly. Following are a few examples of markets that are expected to show some promise next year.

In the industrial sector, capacity utilization rates are getting closer to the magical 80% figure, at which time factories typically begin retrofitting existing lines or expanding their facilities. Machine tool orders hit a level of $606.6 million in September — the second highest monthly dollar total in the last 15 years! Year-to-date total of $4.1 billion is up 91.9% as compared with 2010. NEMA’s Electroindustry Business Confidence Index on current conditions reflects optimism, and its future reading is also positive.

The multifamily housing market has performed well of late and should continue to do so in the coming year. Reed Construction data is forecasting multifamily starts to rise 21.4% in 2012 and another 26.6% in 2013. McGraw-Hill Construction is forecasting an 18% increase in construction start dollars in 2012 on top of a 13% increase this year.

It also appears the building alteration/retrofit market will play a key role in the recovery effort. Building owners continue to seek out ways to be more energy efficient and should be open to projects that can help them reduce their energy costs. A big boost in this segment came on December 2, when President Obama issued a Presidential Memorandum announcing a $4 billion investment for energy upgrades of federal buildings, which includes a $2 billion commitment from the private sector. The goal is to upgrade energy performance by a minimum of 20% by 2020 in 1.6 billion square feet of office, industrial, municipal, hospital, university, community college, and school buildings throughout the country. The strategy is to use Energy Savings Performance Contracts to pay for up-front costs, at no cost to taxpayers. Lighting system upgrades will inevitably be the bread and butter type work in this sector.

The power transmission market is another area that appears poised for growth. The Brattle Group, an economic consulting group based in Cambridge, Mass., thinks the line construction business is in the early stages of a 10- to 20-year boom. The two real drivers are the need to increase reliability of the national grid and the need to deliver large amounts of renewable power generation to population centers.

For a more in-depth analysis of our 2012 construction forecast, turn to the cover story on page 14. Happy New Year!

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© 2012 Penton Business Media, Inc.

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