Building sector has challenges but it is in a good spot for 2020

Uponor North America has grown rapidly, expanding its Apple Valley plant 10 times since 1990 and opening a $6.4 million factory in Hutchinson last year. The maker of flexible plumbing and heating pipes is enjoying a steady economy and building boom. But it's also battling labor shortages as unemployment has sunk to historic lows. Bill Gray, president of Uponor North America, talked with the Star Tribune recently about growth, hiring woes, the economy and the chances of a recession. North American sales were up about 2.8% to $307 million through the end of the third quarter of this year. "That shows a bit of vitality" for the business, Gray said. This interview has been edited for clarity and length.

Q: What are your expectations for the construction industry in 2020?

A: With the housing-start numbers that recently came out, we have a little bit brighter picture than we had maybe a week or a month ago. So, I think that there is a green light in the residential segment. When you look at the commercial segment, however, commercial means bigger projects with longer lead times. So a builder's confidence tends to be a bit more of an important factor. Because if you break ground on a building today, you may be opening that building in the middle of a recession. That is the way people think.

Q: Do you worry about a recession?

A: There is skittishness about what is going to happen, not necessarily in 2020, but in 2021. Right now, commercial construction is flat to slightly up. So there are no storm clouds. It's just that builder confidence is a question. It has to do with the development times, the large size of these commercial projects and the long lead time to completion that makes it more at risk. From what I am hearing, 2020 is going to be good, because it's an election year and because there is a fairly good amount of projects in the funnel. But as you get into 2020, if it looks like there are going to be some challenges in 2021, you will start to see some of that confidence eroding pretty quickly.

Q: Has the construction-supply business been hurt by shifting U.S. trade policies?

A: Uponor imports significant amounts from Europe and have not been largely impacted by the tariff actions that have been happening. But I will say that our customers and end markets have not been without challenges. If you look at the impact of the Chinese tariff actions and then the threatened actions against Brazil and Argentina from a couple of weeks ago, this kind of dynamic is really undermining confidence in the market. We are in construction, which is by definition "investment." Investments get undermined and probably softened a little by any threat to the builders' or developers' confidence.

A: We have just enough employees to get the work done. We are around 900 for North America. About 750 of those are in Minnesota. We have a little bit of the problem that as fast as we fill the top of the [hiring] bucket, we have leaks out the bottom. We're not that different from how all manufacturers are coping with the labor challenges in the United States now. We have been on our toes for a couple of years in this hypercompetitive Twin Cities market.

Q: What obstacles affect hiring?

A: One issue in the workforce is aging. Another is that the workforce we are trying to attract are the skilled and semiskilled worker, which is a very narrow band. If you really looked at the unemployment rate with that kind of granularity, you would probably find unemployment is even less than the roughly 1.9% for the Twin Cities.

Q: How do you combat that?

A: By having attractive wages and benefits and total compensation. We think that are we are at, or leading the market there. But [the tight market] still means that people have more choices and people will pick what works best for them. We operate four shifts, which means you would work four days on and have four days off. It can be attractive to people who like a bulk of their time on and off. But it's also a challenge if you have a family situation and need to be home on weekends. And operating four shifts doesn't mean that all shifts are open to new hires. You have to fit into where there are openings.

A: We have continued to grow the business. [Besides hiring] we're also doing automation and things that help with productivity. The game we've been playing in the last 24 months is about profitability improvements. We have shown good developments there.

Q: What changes should we expect to see in 2020?