December 7th, 2023
The 2024 Business Climate: Uncertainty is the Only Certainty There Is
As I travel and visit customers this time of year, I usually like to take their temperature as it relates to what they think the coming year will bring. This year I would describe their average temperature as lukewarm. That’s because I would have to say that there is a fair amount of uncertainty in the industry. The uncertainty is surrounding three key issues which greatly impact our industry and for which no one really has a clear idea of what to expect.
1. There is uncertainty surrounding how the new Energy Star requirements will play out. There are those fabricators that are going all out with advanced, more energy efficient frame designs coupled with triple-pane insulating glass (IG) and then there are those that say they are going to do absolutely nothing new and let the chips fall where they may. We will likely see somewhat of a marketing war emerge. On one hand we have the Energy Star compliant fabricators. They will be proudly touting their labels and telling consumers that their windows represent the state of the art. They will be pitted against the naysayers who will sell their windows at a lower price point while telling consumers that they will never realize a payback on the higher costs associated with installing windows bearing the Energy Star label. The naysayers will tout overall window design including more competitive pricing, colors, ergonomics, durability, warranty and their company reputation. They will strive for overall customer satisfaction in addition to a decent level of thermal performance. Given this inflationary market, they just might do very well with this approach. So which approach will win over the consumer? Only time will tell.
2. There is uncertainty about the housing market and how this will affect the fenestration industry in 2024. Given the fact that 2024 is an election year, many feel that there may be an attempt by the Biden administration to prop up the housing market. According to a Morningstar article, Redfin expects the Biden administration to focus more efforts on housing, given how fast affordability has deteriorated in the last year.
Now, considering the fact that home prices are up more than 20% since Biden took office, Redfin states that, “High housing costs are making many Americans feel poor.” Redfin’s forecast also expects mortgage rates to drop. The rate on the 30-year fixed-rate mortgage was averaging 7.22% as of November 30, according to Freddie Mac. The 30-year rate will fall throughout the year, Redfin predicts, and will likely drop to 6.6% by the end of 2024. Even though Redfin expects the U.S. Federal Reserve will keep interest rates at their current level for the time being, it’s expecting a rate cut two or three times starting in the summer. This would in turn bring mortgage rates down. The big question is will this be enough to have a significant and positive impact on the window industry or will it just be more of the same?
3. There is uncertainty in the labor market. Will availability of manpower improve? According to the US Bureau of Labor Statistics, the projected labor force growth over the 2014–24 period has been affected by the aging of the “baby-boom” generation, defined as those born between 1946 and 1964. In 2014, Baby Boomers were 50 to 68 years old. The first of their generation (those born in 1946) became eligible for early Social Security benefits (age 62) in 2008 and reached full retirement age of 66 in 2012.
In 2024, the baby-boom segment will be between the ages of 60 and 78. A significant portion of these people will already have exited the labor force. Another factor is population growth. As a result of declining fertility rates, the population of the United States is growing more slowly than in previous decades. We are also getting older. Moreover, the labor force participation rate has been declining. This is due to demographic, structural and cyclical factors, after having peaked between the years of 1997 to 2000. Therefore, since population is the single most important factor in determining the size and composition of the labor force, the labor force growth rate is declining simply because the population growth rate is declining.
So simply put, if we want to grow our businesses at a rate faster than the rate of population growth, then we better figure out ways to do it with less people. One mitigating factor that may help offset this while also serving to reshape the labor market will be artificial intelligence (AI). The rapid emergence of AI, coupled with a growing trend toward automation, will result in a shift from blue collar operational roles to more highly skilled positions utilizing AI skills. This will help reduce the need for workers who are being relied upon to do repetitive tasks to those who are highly skilled in the field of AI. According to an article in Forbes, 2024 Workplace Predictions, AI and machine learning specialists take the top spots in the list of the fastest growing roles in the workplace.
So, there you have it. The uncertainty surrounding these three key areas has everyone feeling a bit insecure when it comes to gauging the business climate for 2024. But as the great American mathematician and Temple University professor John Allen Paulos once said, “Uncertainty is the only certainty there is, and knowing how to live with insecurity is the only security.”