“Macro-economically speaking, we are going toward a recession in 2024.”

Those were the words of Brian Beaulieu, chief economist and CEO at ITR Economics, to Nexstar Network contractor members during Super Meeting 2023, which was held in Phoenix in October.

“U.S. industrial production is already edging that way. Manufacturing is already running below a year ago levels and GDP is losing steam,” he adds. “The good news there is through, most of you don’t play in the world of GDP. You're more on the leading side of things by virtue of housing, existing home sales. And therefore, you're going to be on the earlier turning side of things when it turns up. They are also going on tighter lending conditions. This concerns me in terms of all of you running businesses. Small firms and large firms are finding it harder and harder to get a loan, which means cash is king. If you have cash, you own the next couple of years. Leading indicators are beginning to lift, and that tells us it's going to be a relatively short downturn in the economy.”

Beaulieu notes what all this means for service contractors is this: “If you're experiencing a slump in activity that's directly related to housing existing home sales, that's one thing. But if other parts of your business are just slumping a little bit right now, it's not because the consumer can't afford you.

“It's because the consumer doesn't need you at the moment. And that's a lot easier to recover from. With the right marketing, you can convince them that they do indeed need you. This is something that you can overcome rather than waiting on the economy to come turning around,” he continues.

Contractors can worry about the slump right now, Beaulieau notes, but he advises them to look ahead at the next five years and prepare for coming trends by ensuring they have the workforce and capital to make growth happen.

2024 Plumbing industry trends

According to Cindy Sheridan, CEO of Plumbing-Heating-Cooling Contractors — National Association (PHCC), finding, training and retaining employees will continue to be a challenge moving into next year.

“It will also be difficult for contractors to keep up with and comply with the increasing number of regulations affecting the industry,” she adds. “Higher interest rates and costs will persist. Some supply chain issues will linger, but not as many as before. New technology, including Artificial Intelligence, will continue to impact the industry.”

Additionally, with many homeowners still feeling the pinch of inflation, contractors will notice that more potential customers are price shopping, notes Kevin Hill, master advisor for CEO Warrior.

“When money is tight, even loyal clients might consider switching to cheaper options,” he says. “Consumers want to hire reputable companies. These companies are also where the best employees want to work. So, highlighting your company’s value not only helps overcome consumer pricing objections, but it also helps with attracting and retaining good workers.”

David Federico, senior director of marketing for Rinnai, believes the industry will continue to demand higher-efficiency products that offer superior performance.

“We expect continued growth in both the residential and commercial segments,” he says. “In preparation for this growth, Rinnai is launching several new and innovative products in both segments in 2024.”

Regis Saragosti, CEO of SFA Saniflo North America, notes that the plumbing industry is increasingly focusing on sustainability and environmental concerns, and contractors can expect the continued growth for eco-friendly plumbing products and practices, such as low-flow fixtures, greywater recycling systems and water-efficient appliances.

“The plumbing industry continues to face challenges related to a shortage of skilled labor,” Saragosti adds. “In 2024, this issue could continue to be a concern, leading to efforts to attract and train new plumbers and technicians. As such, prefabrication in construction has been gaining momentum. In 2024, you might see an increase in prefabricated plumbing systems, which can help save time and reduce on-site labor costs.

“It's important to note that economic conditions, technological advancements, environmental regulations and unforeseen events can influence the performance of both residential and commercial plumbing sectors,” he continues. I believe the residential plumbing sector will be more difficult in 2024 due to multiple factors, including high-interest rates, the potential drop in hiring from various companies, high prices and inflation. Conversely, the commercial sector may be less concerned in the short-term since many projects have already been approved or are in progress. I will be more worried about the commercial activity decreasing in 2025 and 2026. (if we can't contain the inflation).”

Andres Caballero, president of Uponor North America, points to a couple of trends contractors will face next year.

“First, we’re clearly going to be dealing with evolving economic conditions,” he says. “We have a period of time where interest rates are high and mortgage rates continue to be high. Inflation is also continuing to put some pressure on the market. So we will see how some of our industry continues to react to some of the more economic and monetary policy. But beyond that, the biggest trend is really around labor, labor utilization and access to labor. The plumbing industry is going through a generational change and shift, and that is creating a shortage on skilled labor. That’s going to be critical for us in terms of where we put a lot of focus and emphasis around some technologies that allow for faster installation. That's why the customer Experience Center is such a key on solving that, because we are going to be focusing on training some of those contractors that are going to be welcoming a new generation skilled workers into their teams.”

Caballero adds that Uponor is seeing cyclicality between both the residential and commercial markets.

“When you think about the single-family residential market that has gone through a boom and then a little bit of a slowdown, a lot of the people that were moving to a new single-family home are moving to maybe a multifamily home or an apartment building,” he explains. “So when we see a slowdown in one, we see a little bit of an increase in another one. Playing strongly on both is serving us to maintain a good position in the markets. We’re going to continue to see a softness in the residential markets and some strength on the commercial markets, but I do expect that's going to change as we enter into 2024 as we see some of these inflationary times subside and mortgage rates come down. There's going to be a new opportunity for single-family and residential markets to bounce back into 2024-2025.”

According to Kerry Stackpole, executive director and CEO of Plumbing Manufacturers International (PMI), from a plumbing manufacturer standpoint, the urgency surrounding both water efficiency and sustainability is a key trend.

“This urgency affects virtually everything we do – product development, packaging, manufacturing processes, supply chain and even talent management,” he says.

Stackpole agrees that the single-family residential construction market has been hampered by higher interest rates and tightened credit requirements.

“Throughout 2023, residential housing starts have been in decline compared to 2022,” he says. “We saw single-unit housing starts begin to tick up during the summer, a tentative sign of recovery. However, with mortgage rates still above 7%, we’re in a wait-and-see position heading into 2024. With multi-unit residential, we expect the decline to continue until mid-2024. Commercial construction is accelerating, up 14.5% from a year ago, and we expect this surge to continue into mid-2024, when we believe a decline will begin due to the cumulative pressures of declining corporate profits, elevated interest rates, tightening credit standards and waning economic activity. While these statistics reflect the overall housing and building markets, they obviously forecast the impact they are likely to have on the plumbing industry as well.”

Technology impacts

Technology is constantly evolving in the plumbing and HVAC industries.

“Enhanced ventilation and filtration systems will continue to be of interest to homeowners, and commercial business owners,” Sheridan notes. “Contractors can increase business opportunities by providing their clients with Indoor Air Quality (IAQ) assessments and offering upgraded equipment and maintenance plans that address consumer concerns. HVAC and plumbing contractors likely will see increased opportunities to provide high-efficiency HVAC and water heating equipment and services to interested consumers. Technology innovations, both in the field and in the office, continue to make a big impact on the construction industry by helping businesses streamline processes and operations and become more profitable. Artificial intelligence, when used properly and safely, opens up new opportunities as well.”

Sheridan adds that the movement toward electrification and emissions reductions will drive more products to heat pumps. “Heat pumps themselves are not new but, for many contractors, they have not been a commonly installed product. Cold climate products, inverter drive products and very high-efficiency products will drive contractors to invest in training and updating of procedures. Contractors need to be prepared to educate their customers on the costs and benefits of heat pump water heaters and furnaces, and to determine if a heat pump system is right for them.”

According to Hill, technology will continue to evolve in the trades.

“Not only will it enable PHC contractors to quickly and accurately diagnose problems and have their trucks ready before they get to a job site, but these technologies also help customers better understand a contractor’s role,” he notes. “Smart technology is helping home service providers educate their customers, which allows them to see your value.

“The trades, like most industries, will be impacted by AI,” Hill continues. “Smart PHC leaders will integrate AI to help their technicians diagnose issues and prescribe fixes before the customer even realizes a problem might exist. This automation provides data quickly and efficiently, which is especially attractive to consumers who have grown up with instant information at their fingertips. This is a space where PHC contractors can leverage AI to their advantage in selling service agreements or memberships. This could be tricky, though, because no one wants to feel monitored. There will be a balance between providing service and uptime and making people uncomfortable.”

Hill also notes that homeowners will begin to have even more access to information about their homes because of whole-home connectivity and management systems. “AI is allowing homeowners to access information about their Indoor Air Quality (IAQ), their service and maintenance schedules and more. This can lead to more value-added conversations and the ability to provide customers with more technical information because they already have the data in hand. This technology should be met with some caution, however, because some consumers will be rightly concerned with data breaches. Contractors need to recommend that consumers use technology with data security built in. While managing your home from an app on your phone anywhere in the world is intriguing, it’s dead in the water if that leads to security breaches, sold data or intrusive monitoring.”

Regulatory activity impacts

There are several significant regulatory changes on the horizon the plumbing and HVAC contractors should be aware of moving into the next year.

“P-h-c contractors are in the position right now of carrying the burden of the refrigerant transition,” Sheridan says. “Significant changes in technologies will start in 2024 as the industry moves toward new EPA standards effective Jan. 1, 2025. Contractors in the HVACR arena should be planning strategies for compliance over the next year.

“Significant regulatory changes in the indoor water and air heating space and the implementation of the multi-billion-dollar rebate program under the Inflation Reduction Act resulting from a significant transition in national energy policy will also be important over the next few years,” she continues. “PHCC monitors all of these issues very closely on a daily basis, ensuring our members have the best information and a firm grip on this reality because their success will depend on it. To make sure contractors’ needs are protected, PHCC advises our members to continue to be vigilant and alert us of any concerns so we can convey their input to our coalition partners and relevant policymakers. Throughout this process, PHCC works to ensure sound policy that governs us based on facts and market variables.”

Hill advises contractors to appoint a person or a board to continually monitor regulatory changes. “By monitoring regulatory agency websites, attending industry conferences, joining industry associations and implementing compliance software, contractors can stay on top of these changes.”

Sustainability and environmental concerns

Another trend the plumbing and HVAC industries are currently facing is the push for electrification and decarbonization. Several states and cities are moving to ban natural gas to move the needle forward.

“As most people know, New York became the first state to officially ban natural gas connections in new construction and is following California’s lead in phasing out the use of gas and liquid fuel appliances in the next decade,” Sheridan says. “Other states are following along this path. PHCC is tracking these activities, but encourages our members to communicate to PHCC any actions in their jurisdictions that they may discover. These are policies designed to leverage these states’ market power to force a shift from products using carbon-based fuels to those using heat pump technology.

“We recognize the need to reduce carbon emissions for the sake of our environment, but also believe consumers know best how to power their homes and appliances,” she adds. “We support a diverse national energy portfolio that includes the use of gas and liquid fuel sources for appliances to ensure the quality of life on which Americans rely for their health and comfort.”

The world is moving and will continue to move toward sustainable and environmentally efficient solutions, Federico notes. “The challenge we must deal with is ensuring that all factors are considered before passing rules and legislation that could potentially have adverse impacts on the environment and the industry. While we are exploring product opportunities that leverage multiple sources of fuel, we remain committed to our belief that gas appliances provide a superior and efficient solution for water heating.”

Saragosti explains that sustainability and environmental concerns will continue influencing the plumbing industry through the increased demand for water-efficient fixtures, sustainable materials and practices, increased popularity of greywater recycling and rainwater harvesting and retrofitting existing systems to improve water and energy efficiency.

“Customers are becoming more aware of the environmental impact of their plumbing choices. Plumbers and contractors may need to educate clients about sustainable options and their benefits,” he says. “Plumbing professionals who proactively adopt sustainable practices and stay informed about the latest technologies and regulations will be well-positioned to meet the growing demand for eco-friendly plumbing solutions.”

Workforce development

According to Sheridan, PHCC’s quarterly Contractor Confidence Index indicates one of the biggest challenges for PHCC contractors is a lack of qualified technicians.

“Workforce development is one of the key goals of the PHCC strategic plan,” she says. “To help our members ensure that they have a skilled workforce in 2024, we will continue to provide programs and resources they can use to attract and retain employees. For example, the PHCC Educational Foundation is rolling out two new programs: the Pre-Apprentice HVACR and the HVAC Fast Track program. Several workforce development-related education sessions were offered at PHCCCONNECT2023, and are part of the PHCC webinar schedule each year.

“PHC contractors need to urge their federal legislators to pass the National Apprenticeship Act, JOBS Act, WIOA Reauthorization, and continued funding for job training programs such as Perkins CTE,” Sheridan adds. “This ensures a framework that incentivizes jobseekers to pursue careers in the building trades by offsetting some or all of the costs of training and education.”

CEO Warrior has also noted an uptick in the number of contracting companies who have expressed concern about their inability to hire and retain qualified employees who are good at their jobs, Hill notes.

“Our advisors continually stress that employee training and development in addition to an improvement in company culture are two of the best ways to keep top employees,” he says. “Providing your technicians with sharp, clean uniforms and modernized trucks and equipment also improves longevity. Companies should also consider developing apprenticeship programs to help them ‘grow their own tech.’ This not only increases the workforce pool, but it allows you to train young people for the positions you need. Finally, separating your home service company from the herd can help you retain good employees. Providing them with avenues to earn industry-recognized accreditations, such as the North American Technician Excellence (NATE) or HVAC Quality Installation (QI) certifications, keeps employees happy and customers impressed.”

Federico points to the shortage of skilled labor remaining a key challenge for the plumbing contractors in the coming year. “This makes it difficult to allow for time to learn about new technologies and product enhancements. To combat this, Rinnai is offering a variety of different training experiences including live and remote courses.”

Saragosti agrees, saying, “The shortage of experienced plumbers and technicians has been an ongoing challenge in the plumbing industry. In 2024, this issue may persist, making it difficult for plumbing contractors to find and retain qualified workers.

“In order to prepare for the challenges of 2024 and beyond, plumbing contractors should consider investing in ongoing training and education for their workforce, staying updated on industry trends and regulations, and adopting efficient project management practices,” Saragosti advises. “Developing strong customer relationships and embracing sustainability and technology can help contractors remain competitive in a rapidly evolving industry.”

Advice for contractors

When giving advice for plumbing and HVAC contracting business on how best to succeed in 2024, Federico stresses the importance of staying current on new technologies and investing in proper training for team members. “This can help them stay familiar with new products and ensure they are profitable for your business.”

While smart plumbing technology is a prominent disrupter, factors like changing regulations, environmental concerns, and economic conditions can also significantly influence the plumbing industry, Saragosti notes.

“Therefore, plumbing professionals need to stay informed about emerging trends and adapt to evolving market dynamics to remain competitive and provide value to their customers,” he says. “Remember that the plumbing industry is dynamic, and success often requires adaptability and a commitment to staying current with industry trends and technologies. By focusing on sustainability, customer service, education and innovation, plumbing contracting businesses can position themselves for success in 2024 and beyond.”

Cabellero’s advice to contractors is simple — training.

“There are going to be a lot of changes into the demographics of the labor force in the employment trade, and training will play a much more important role than before,” he says. “Before, there were certain methods and processes that were well known and established, but as the new generation of plumbers come into the workplace, training is going to be critically important. Look for companies like Uponor whot are actually making significant investments into training of their customers into these technologies, and also gravitate towards companies that are really focused around increasing productivity because that's going to be another big driver.

Stackpole’s advice is to learn about how to install new products and technologies — and to practice environmental responsibility by recycling the replaced plumbing products as best you can. “Many PMI members offer training for installers, and it’s a great opportunity for a plumbing contractor to expand what kinds of installation services they can offer to a customer.”

Lastly, change is happening fast for PHC businesses, as well as the industry overall, Sheridan notes.

“In 2024 and beyond, there will likely be consolidations; more diversification of plumbing, HVAC and electrical companies; and more new regulations and equipment,” she says. “As this occurs, trade associations will need to transform to meet their members’ needs.”