Results from NRCAJs AnnualMarket Survey show that the industry

remained strong during 1by Karen Kane

.,009 saw the endof a prosperousdecade-for most

of the 1990s, the U.S. econ-omy was strong, and roofingcontractors reported in-creases in sales volumesand profit margins. NRCA's1999-2000 Annual MarketSurvey reveals that theroofmg industry mirroredthe economy and providesinformation about materialusage and roofing projectsduring 1999, as well asprojections for 2000.

I Mid-Atlantic: New Jersey, New York and PeMsylvania

I West South Central: Arkansas, Louisiana, 008hIJTIa aid Texas

I Pacific: California. Oreqoo aid Washington

I Puerto Rico and U.S. Virgin Islands

Siegel Organization thenevaluated characteristicsof survey respondents'companies and determinedthat they closely reflectedthe defined sample groups.

Surveyed contractorswere asked to provide infor-mation about the percent-age of low- and steep-slopework they performed fornew construction andreroofing during 1999.For the survey. "low-sloperoofing" refers to roofs withslopes of3-in-12 (14 de-

Backgraund grees) or less:.and "steep-

Fig 1 Cl__' ,.~_-n for A~A' 199 '" ~ slope roofmg refers to. UN : I;;,c~n regIOns ~ s... rg" 'V~ S ~O.A.A.I .The survey s fmdings for Annual Ma,*et Survey. roofs With slopes greaterthe 1999 u.s. roofmg than 3-in-12 (14 degrees).market and projections for 2000 are In addition. for the first time. respon-based on about 275 responses to a dents were asked to compute howquestionnaire that was mailed to much repair/maintenance work they2,000 roofmg contractors throughout performed.the United States, including NRCAmembers and nonmembers. This Individual responses to each ques-represents a 14 percent response tion were tabulated and reported asrate. averages. Because some participants

To conduct the survey, NRCA hiredThe Gary Siegel Organization Inc.,Chicago. l1le company evaluatedcharacteristics of roofing companiesin NRCA's database and determinedsample groups based on reported salesvolumes and regions. (Regions sur-veyed are listed in Figure 1.) The Gary

Professional Roofing April 200022

did not respond to all questions orprovide complete information, resultsmay not be representative of the entire

industry.

The re.ul~.Findings from NRCA's 1999-2000Annual Market Survey provide con-tractors' opinions about current andexpected roofing market conditions.The survey reports that the total roof-ing industJy sales volume for 1999 ~$27.7 billion with responding contrM:tors Figure 2: Low- and steep-sbpe roofing sales.

Figure 3: Reroofing, new construction and repair/maintenance sales for /ow-sioperoofing.

Contractors in the Mountain andWest North Central regions predictsmaller increases of 5.3 percent and2.8 percent, respectively. And contrac-tors in the New England region antici-pate a 1.3 percent decrease in 2000.

Law-.lape m.rk.~The low-slope roofmg market consti-tuted 68.7 percent ($19 billion) of thetotal roofmg market during 1999, an

increase of5.1 percent from 1998(see Figure 2). Average sales volumein the low-slope roofmg market for1999 was about $1.9 million. For2000, contractors predict that 68.8percent of roofing sales will be in thelow-slope market. Reroofing work inthe low-slope market weighed in witha 59.6 percent ($11.3 billion) marketshare (see Figure 3). New construc-tion was 26.2 percent ($5 billion)of the market, followed by repair/maintenance, which captured 14.2percent ($2.7 billion).

Of the low-slope reroofing work per-formed during 1999, tear-off and re-placement was the method used 68.5percent of the time with the remaining31.5 percent being re-cover work (seeFigure 4). Survey respondents expectreroofing to account for 59.8 percentof their low-slope work this year.

Contractors in the New Englandregion report the largest margin ofdifference between the percentage ofreroofmg and new construction work

1999low-slope reroofing

having an average sales volume of$2.7 million. (Sales volume includesroofmg, roof deck, waterproof-ing, sheet-metal, insulation andrepair/maintenance work.)

During 1999, unusual weather con-ditions (there was little precipitation)affected roofing companies in all partsof the United States. Many contractorsworked through their backlogs. makingseveral contractors cautiously optimisticabout market conditions for 2000.

Roofing contractors predict a $29.2billion market for 2000, which is abouta 5.4 per<.-ent increase from 1999. Theaverage sales volume forecast for 2000is $2.9 million.

Significant differences were reportedin the expected average growth of salesvolume for 2000. For example, roofingcontractors in the pacific region expecta sales volume increase of about 13.3percent, and those in the West SouthCentral region estimate a 12.7 percentincrease. Figure 4: Reroofing methods used for /ow- Bnd steep-slope roofing.

PmfessiontJ Roofing April 2000 23

new constructionmarket in 1999,followed by built-up roofing (BUR)(19.5 percent)and modified bi-tumen (17.8 per-cent). For reroof-

ing, single pliesaccounted for31.6 percent, fol-lowed by modi-fied bitumen(23.2 percent)and BUR (21.3

percent).

Steep-slapem8rk.~The steep-sloperoofmg marketaccounted for31.3 percent($8.7 billion) ofthe total roofmg

Figure 5: Average percentages of 1999 Jow.s1ope roofing sales market in 1999.by material type. The average an-

nual sales volumein the steep-slope market ~ $845,100.For 2000, respondents predict thatsteep-slope roofing will account for31.2 percent of the market.

Reroofing captured 56.6 percent($4.9 billion) of the steep-slopemarket in 1999. New constructionrepresented 29.5 percent ($2.6billion), and repair/maintenancework represented 13.9 percent

perfonned (64 percent reroofmg vs.14.6 percent new construction). TheWest South Central region, however,exhibited the smallest margin ofdifference between reroofing and newconstruction-46.9 percent reroofmgvs. 41.5 percent new construction.

As shown in Figure 5, survey re-spondents report that single-ply roofsystems captured 41.2 percent of the

~ ccording to the U.S.Bureau ~f Economic

Analysts, the U.S. econ-omy continued to exceed growthforecasts during 1999 even though

inflation-adjusted output growthslowed to 4 percent. In 1998, eco-nomic growth was 4.3 percent, andit was 4.5 percent in 1997. The U.S.Bureau of Labor Statistics reportsthat continued output growth led toupward pressure on prices.

Consumer prices rose 2.7 percentin 1999, exceeding the forecastedinflation rate of 2.2 percent. In addi-tion, producer prices increased, reg-istering a 3 percent increase for theyear. (Higher energy prices havebeen the primary cause of higher in-flation during the past year becausethe consumer price index for energyrose 13.4 percent.)

The increases in current inflationrates and expectation of future in-creases have led to substantial in-creases in interest rates during thepast year. In a series of three increas-es since June 30, 1999, the FederalReserve raised the discount rate,which is the rate it charges memberbanks for short-term borrowing,from 5 percent to 5.75 percent. Con-tinued declines in unemployment,which now stands at the lowest levelin 30 years (4 percent), are raisingfears of incipient wage inflation.

In addition, the stock market,which posted record gains, particu-larly in technology stocks, is underheightened scrutiny from the Feder-al Reserve because many analystsargue that stocks are overvalued,suggesting a substantial drop orcorrection in the market.

During 1999, the Dow Jones in-dustrial average rose 17.15 percent;Standard and Poor's index rose 16.08percent; and NASDAQ's index,which features a disproportionate

Figure 6: Reroofing, new construction 8nd repair/maintenance sales for Steep.S/operoofing.

24

.In

by .John Smith .Jr.

from an 11.8 percent increase in 1998.And based on analysts' projections, thegrowth of fIXed investments will slow to4.9 percent this year and 2.7 percent in2001.

Warehouse and distribution facilityconstruction are expected to remainbrisk as electronic commerce firmsseek to expand their facilities to handlethe growing volume of online sales. In-stitutional building is expected to regis-ter a slight slowdown during the nexttwo years though state budget surplus-es and the continued need to replaceaging educational infrastructure willhelp keep government constructionfairly constant

Wages for all private-sector employ-ees rose from an average $13.04 perhour in January 1999 to $13.50 perhour in January 2000-a 3.5 percentincrease. In construction-related in-dustries, average hourly earnings rosefrom $16.80 per hour in January 1999to $17.46 per hour in January 2000,which is an annual increase of3.93percent. Labor shortages of construc-tion workers in some regions con-tributed to this wage growth.

Using a measure of employmentcosts that includes both wage and

nonwage compensation, employmentcosts in construction increased only3.3 percent in 1999 compared with aneconomywide increase of 3.4 percentOf note is the fact that the rate atwhich employment costs increased feUfrom 3.9 percent in 1998 to 3.4 percentin 1999. These wage increases wereroughly commensurate to increases inlabor productivity (output per worker)of about 3.3 percent in 1999.

Because the magnitude of wage in-creases was equal to growth in laborproductivity, the raw increases inwages were not inflationary. Manystate and local economies, however,essentially are at full employment andhave no surplus labor with which to

meet rising demands for workers. Ana-lysts forecast average hourly wage in-creases of about 9.5 percent during thenext two years, and labor productivityis expected to grow by only 3.89 per-cent. When wage growth exceeds pro-ductivity, inflationary pressures on theeconomy will build.

Given the construction industry'srobust perfonnance during the pastfive years, the industry consistently hasoutperfonned consensus forecasts forsales growth. NRCA's 1999-2000 An-nual Market Survey predicts averagesales growth will be 12 percent. Thereis no reason to discount this forecastof sales growth as overly optimisticthough higher interest rates will damp-en construction activity.

Rising commodity prices, chiefly forpetroleum products, will generate in-flationary pressures in the U.S. econo-my throughout the remainder of theyear, and expectations of higher infla-tion will put upward pressure on inter-est rates. Another dampening influ-ence on economic growth is the FederalReserve's desire to blunt the expansion-ary effect of stock market wealth byraising interest rates in an attempt tocool off equity markets that are allegedto be overheated.

The more difficult variable to pre-dict is the stock market-higher inter-est rates suggest a slowdown in themarket, but technology stocks continueto drive the NASDAQ index higher.To the extent that expectations of amarket correction cause more pes-simistic business and consumerexpectations, spending driven bystock market wealth will lead to aslowdown in construction activity.

number of technology companies, reg-istered a phenomenal 88.82 percentincrease.

The expectation of higher inflationrates immediately was factored intolong-term interest rates, such as homemortgage loans. As of Jan. 20, interestrates on 3O-year fixed-rate mortgagesaveraged 8.26 percent, up from 6.78percent one year ago. The average fora IS-year fixed-rate mortgage rate was7.86 percent, up from 6.42 percenta year ago. One-year adjustable-ratemortgages averaged 6.56 percentcompared with 5.57 percent one yearearlier. The current levels of mortgageinterest rates are the highest sinceSeptember 1996 and are expectedto dampen new home sales this year.

Nonetheless, these higher interestrates did not slow the brisk pace ofhousing construction during 1999; -housing starts were up 7.1 percent inDecember 1999, a much higher figurethan anticipated.

One force counterbalancing higherinterest rates in the housing market isthe sustained wealth effect. As the val-ues of stock portfolios grow, consumerscan afford new homes, and existinghomeowners are building larger homes.A recent article in 11Ie wall Street Jour-nal noted a 5.5 percent increase in thesquare footage of new housing startsduring the past three years. 11lis grow-ing wealth is fueling not only newhome sales but extensive home improve-ments and renovations, particularly inresponse to higher new house pricesand shortages of land in many commu-nities. A substantial downturn in themarket could destroy the wealth uponwhich this spending is based.

Higher interest rates will raise thec."Osts of funds for businesses, as well,suggesting a decrease in fixed invest-ments this year. Fixed-investmentspending is expected to register an8.2 percent increase for 1999, down

John z. Smith Jt: is an assistant profes-sor of economics at Vassar College,Pouehkeevsie. N. Y:

insulation captured most of theremaining shares in the steep-slopemarket.

I BUR-asphalt

BuyingdeclalanaIn addition, survey respondentswere asked who decides whichroof system type to install andspecific manufacturers roofmgproducts to use. Results show thatthese decisions depend on whethera project involves new constructionor reroofing work.

I Spray polyurethane foam

I APP-modified bitumenI SBS-modified bitumenI Clay tile

I Oraanic asphalt shingleI Fiber-cement shingleI Wood shingle/shake

For new construction, archi-tects or specifiers typically de-cide the roof system used, butroofmg contractors usually selectthe manufacturer. For reroof-ing projects, roofing contrac-tors usually make the buyingdecisions for roof system typeand manufacturer.

The sUIVey also asked contrac-tors how they decide which roof-ing materials to use. The top

consideration was material perfor-mance. The level of manufacturer ser-vice and warranty were the next mostimportant considerations for roofingcontractors.

($1.2 billion) (seeFigure 6).

Of the reroofingwork completed during I

1999. tear-off and re- I

placement was the most I

common method atI

81.4 percent; re-coverwork accounted for18.6 percent of reroof-ing activity. Contractorsexpect reroofmg to gar- I

ner 58.1 percent ofsteep-slope work in2000.

Respondents in thePacific region reportthe largest margin ofdifference betweenreroofmg work andnew construction(65.4 percent reroofingvs. 14.6 percent newconstruction )-repair/maintenance accounted Figure 7: Aller8ge percentages of 1999 steep.5/op6 roofingfor 20.1 percent. Con- sales by msteriBl type.tractors in the SouthAtlantic region have .the smallest margin of difference be-tween reroofmg and new construction(47 percent reroofmg vs. 39.7 percentnew construction). The West SouthCentral and East North Central re-gions report the highest percentage ofsteep-slope repair/maintenance work(20.4 percent).

As shown in Figure 7. fiberglass as-phalt shingles were used most often bycontractors for new construction (47percent) and reroofing proj-ects (53.9 percent) in 1999.Architectural metal ac-counted for 22.2 percentof new construction and 8.7percent of the reroofmg Imarket. r

Polyisocyanurate insulation was usedmost often in 1999, garnering 55.1 per-cent of the low-slope market. Woodfiberboard (14.9 percent) and perlite(11.9 percent) were the next most pop-ular low-slope insulation types.

In the steep-slope market, poly-isocyanurate insulation again wasthe most popular insulation type-contractors report using it 42.1percent of the time. Composite (16.8percent) and fiberglass (7.1 percent)

Wrapping upNRCA's market sulVey is not meant to

be a definitive representation of the

roofing industry. However, its results

can be revealing and provide insight

into industry trends. II

Percentages of 1999 insulation installations

L8w-1..,.6.72.43.70.2 .

1.111.855.11.9

14.9"'2.2

s.., 2

37.11..1:.3 :2.9I '

42.1 :18.8 jI

9 :I

f2.8

_~ded polystyrene (EPS)Extruded polystyrene (XPS)

Editor'. note: To purchasea complete copy of NRCA's1999-2000 Annual MarietSuroey, contact NRCA'sMarieting Services Depart-ment at 10255 w: HigginsRoad, Suite 600, Ros~t,IL 60018-5607; telephone(847) 299-9070;fax (847)299-1183; or visit NRCA'sWeb site at www.nrca.net.

RberglassCellular fiberMineral fiberPerlite

PolyisocyanurateCompositeWood fiberboardOther

InaulaclanNRCA's market survey alsoasked roofing contractorsabout the insulation typesthey used most frequentlyin roof systems; results aredetailed in Figure 8.

Karen Kane is NRCA's direc-tor of contractor management

programs.Figure B: Average percentages of 1999 insulation installationsby insulation type.

26 Professional Rt)(~ng April 2000