Industry Forecast—Bradford White: Inflation, Labor Questions, Geopolitical Instability Cause for Concern

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Mechanical Hub kicks off its 2023 Industry Forecast series with good friend, Bruce Carnevale, President and CEO, Bradford White Corporation. You would think coming out of a global pandemic there might be signs of positive growth. But hold your horses, as they used to say. For the economy to back on the right track, it’s going to take some time, and steady leadership.

Bradford White Corporation, industry forecast, economic forecast, water heaters, government regulations, plumbing, heating, Bruce Carnevale

Bruce Carnevale, center, right, holding water bottle

MH: I’ve heard that the first half of 2023 might be a bit bumpy, how do you see 2023 shaking out and the short-term economy in general?

Carnevale: I’m actually a bit more concerned about the 2nd half of 2023, John. While most economic indicators are not good right now, some are headed in the right direction so there feels like there is a bit of stability for now. Even though it has moderated the past couple of months, inflation continues to be stubbornly high, but the jobs market had been surprisingly strong. I’m not sure everyone understands that when the inflation rate falls from 9.1% to 6.5% (for current US inflation info), that doesn’t mean prices have fallen. It means that prices are increasing at a lesser rate, but they are still increasing at over three times the Fed’s target rate!

Bradford White Corporation, industry forecast, economic forecast, water heaters, government regulations, plumbing, heating, Bruce Carnevale

I believe that historically high prices have slowed demand, and helped slow the pace of inflation more so than the Fed’s rate increases have up until now. It takes time for the Fed’s actions to take hold, and I think we will see the impact of that later this year in the form of a significant slowdown. If not technically a recession, I think it will feel like one to the American consumer. I hope that the Fed becomes less aggressive with its 2023 rate increases.

I mentioned that the labor market has remained strong, but my sense is that is changing fast…every day we are hearing of new layoffs at some of the country’s largest employers. This is a clear indication of how much demand has slowed, and I think that will continue into the 2nd half of 2023.

MH: What causes you pause for concern? (Steady inflation, supply chain, housing starts, interest rates, foreign factors, etc.)

Carnevale: All of the above! But what concerns me most is labor availability. I think most companies would say the shortage of workers is still their number one business concern, despite all of the other challenges you mentioned. I am hopeful that the slow down in the labor market will bring the number of available workers and the number of job openings back to equilibrium.

Bradford White Corporation, industry forecast, economic forecast, water heaters, government regulations, plumbing, heating, Bruce Carnevale

The global geopolitical instability also keeps me up at night. We all saw the effects of Russia’s invasion of Ukraine and the ensuing war. That continues to be impactful to supply chains and economies, especially in Europe. But there are several other hot spots in the world that could erupt, whether it be wars or new COVID outbreaks, and have dramatic impacts on the global economy and supply chains.

MH: Are you seeing any signs of positivity? If so, where?

Carnevale: Absolutely. I’m actually somewhat bullish for our business for 2023. As I’ve mentioned in articles and presentations over the last year and a half, we’ve been in a period of correction from the over buying of water heaters in 2020 and 2021, but the worst seems to be behind us. It is also great to re- engage with our customers and business partners in person, and their businesses have mostly normalized to what they were pre-pandemic.

MH: Without getting too deep into the weeds, how do regulations help or hinder the manufacturing process, and are there any significant ones coming down the pike of which contractors should be aware?

Bradford White Corporation, industry forecast, economic forecast, water heaters, government regulations, plumbing, heating, Bruce CarnevaleCarnevale: Really, John? How long do we have? If your question is specific to the impact on manufacturing processes, significant regulations which require manufacturers to build entirely new models are a huge challenge. Imagine that you have a factory which builds products that are currently compliant, and then five years from now, you have to build a completely different products to meet new regulations. That sounds like a sufficient amount of time, right? But you have to continue to produce the current product while you are re-tooling the factory to build new product. There is no practical way that you can just remove all the old equipment, roll in the new equipment, flip a switch to stop making the old models and start making the new models on the date the new regulations take effect. We expect that the Department of Energy’s upcoming NAECA 4 regulation will require us to do just that. We’ll figure it out, but it’s a significant challenge and it will be very expensive.

Bradford White Corporation, industry forecast, economic forecast, water heaters, government regulations, plumbing, heating, Bruce CarnevaleContractors need to prepare for a significant shift to heat pump water heaters, condensing commercial gas water heaters, and condensing boilers. Every indication is that is what the DOE will require, and several states are moving in that direction even faster and more aggressively. Some municipalities have already banned gas water heaters, and some have announced that they will within the next 5 to 10 years. I would encourage contractors to really dig into the regulations pending in their market area and prepare accordingly.

As it relates to contractors, what is your “message” to them as it relates to your company and its line of products and services? Last year, Bradford White celebrated the 30th anniversary of our commitment to the professional installation of our products. As stated in those messages, we will remain “For the Pro” with the products, services and support we bring to our contractor customers. We will strive to continue to be your best partner for success in your business.

MH: What specifically does BW have its sights set on in 2023? (New products, working with assocs. for workforce development, etc.)

Carnevale: Despite some of the headwinds that still exist with regard to the supply chain and the economy, we are excited about 2023. As you know, toward the end of last year, we released our new formula for Vitraglas tank lining where it now includes Microban. The excitement around that has been tremendous and we expect Vitraglas with Microban to help our customers win against the competition in both residential and commercial water heaters. We also have several other new products that launched in 2022 and even more to be announced in 2023.

Bradford White Corporation, industry forecast, economic forecast, water heaters, government regulations, plumbing, heating, Bruce Carnevale

We are also excited to be expanding the reach of our Industry Forward (IF) program, which was created to put a focus on the wonderful career opportunities available in our industry. As you know, all of us in this industry have workforce challenges so we expect to get more traction for IF in 2023 to shine a brighter spotlight on this challenge and increase awareness of our industry’s career opportunities to the general public.