2023 Economic Industry Forecast

From the Desk of Trey Alter,

I am often asked by our customers to share my insights on the direction of our industry and the economy. It is hard for me not to indulge myself when I am asked to dust off my passion for economics and talk about the industry I love.?While no one can see the future with certainty, it is difficult to ignore the storm clouds forming above 2023. For the last two years, we have struggled as an industry with lockdowns, supply chain disruptions, price increases, and worst of all, staffing shortages. We have worked hard to meet and put these challenges behind us; however, I believe 2023 will be the year where we are confronted with a significantly constrained economy.

Our industry is heavily dependent on new home starts and moving activity, and there are numerous warning signs worth noting.

·?????Existing-home sales decreased for the seventh straight month in August.

·??????Permits for future residential construction fell to the lowest level since June 2020.

·??????30-year mortgage rates are topping 7%

All signs point to far less housing activity next year. With fewer households forming, there will be less opportunity for new activations and RMR growth in the residential sector. One silver lining here is attrition may benefit from fewer people moving. Almost half of all cancellations are the result of moves, and with less moving activity taking place there could potentially be less attrition in this category.

The commercial segment of our industry has proven resilient over the last 20 years, but it is not immune to the greater macro-economic trends. If the Federal Reserve continues their interest rate hikes, expect to see business spending slow as businesses of all types tighten their budgets. Various GDP forecasts of between .7% to 1.2% will manifest in reduced spending on capital improvements and expansion activities by businesses.

The one safe harbor in this storm may prove to be the fire protection segment. Fire is a famously code and regulatory driven business and cancelations are rare. While expansion opportunities may not be as plentiful, the RMR will certainly prove to be very durable in tough times.

The security industry has weathered these storms before, and fairs better than many industries. Like any storm though you must exercise caution, or you could be swept up in it. Our industry shrunk in 2008 after the last housing crisis, and it did not return to pre-crisis levels until 2014. Security will always be in demand but to survive and grow your business you should be preparing now for the storm ahead. Let’s hope I am wrong, and the clouds pass us over, but a smooth sea never made a skilled sailor.

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