Notes From A Sparkling ASA Convention

It was one of the best, content-wise.

A delegation from Pennsylvania lobbying staffers from that state's Senators Spector and Casey. A hallway session was required owing to the large number of participants.

Most of you missed it. The economy being what it is, attendance at the

American Supply Association’s Annual Convention, held Oct. 14-16 in Washington, D.C., was underwhelming.

And that’s unfortunate, because from a content standpoint, this was one of the best ASA conventions in this reporter’s long memory. Motivational froth gave way to substance, even though much of what the talented speakers had to say was not very encouraging. But conventions are supposed to be a place to obtain ideas, insights and intellectual stimulation, and from that perspective ASA 2009 was a rousing success.

Also, ASA took advantage of the location to organize a series of congressional lobbying visits by ASA members. Approximately 300 people trekked to Capitol Hill and took part in some 117 appointments with House members or staff and 77 on the Senate side to express their views on cap and trade, LIFO repeal, estate taxes, copper theft and other legislation impacting the industry. Moreover, ASA met with a coalition of allied associations and companies to promote the W.A.T.E.R. Act, aimed at giving consumers a tax credit for installing WaterSense-approved products, similar to DOE’s Energy Star program for appliances.

Besides gang tackling, the lobbying effort was notable for its organization and professionalism. Members were armed with issue briefings and talking points from longtime ASA lobbyist Pat O’Connor. I tagged along on one of the visits with the Pennsylvania delegation to meet with staffs from that state’s Senators Arlen Specter and Ike Casey (photo above), and came away impressed with ASA members’ grasp of the issues and skill in presenting their concerns to the staffers.

Here’s a peek into my notebook for some of the highlights from various speakers:

Karen Alderman Harbert

She’s president/CEO of the U.S. Chamber of Commerce’s Institute for 21st Century Energy, and a former assistant secretary at the Department of Energy. Speaking at the Industrial Piping Division’s Breakfast on opening day of the convention, Harbert gave the audience a bleak look at what she called the “inconvenient truths about energy” entailed in our current policies and future trends. “We are committing energy suicide,” she said. “Demand is growing while supply is stalled.” Key points:

85% of our nation’s estimated gas and oil deposits are off limits due to environmental restrictions.

No nuclear plants have been built in the last 30 years, and while 29 applications are pending their financing is in doubt. Plus, the Yucca Mountain nuclear waste depository has been defunded.

Coal provides 50% of our electricity but faces regulatory uncertainties and huge penalties under the cap and trade legislation (Waxman-Markey HR 2454) that passed the House and is now under consideration by the Senate.

That bill contains some 397 regulations and 1,060 mandates to remove one “gigaton” of carbon dioxide emissions. That’s almost certainly unachievable, and trying to make it happen will likely devastate our economy. Nor will it do the planet much good since polluting industries will simply outsource production to developing nations that don’t have as many restrictions.

A little known fact is that the U.S. is the world’s leading producer of wind energy. Yet renewable solar and wind power comprises merely 1.3% of our nation’s energy needs at present. Even if we were to ramp up renewable production by a factor of 10, we would be nowhere close to meeting future demand relying solely on renewable energy.

The only bright side to Harbert’s talk was her contention that most surveys indicate the public agrees in principle with the need to ramp up U.S. energy production and puts that ahead of specious environmental concerns. “There’s a big gap between what the public wants and how our policy makers act,” she said. Somehow that needs to get translated into “energy realism” and requisite political action.

David Kohler

Kohler Co.’s president and COO gave a frank, detailed assessment of his company’s economic outlook, as follows:

Housing starts have fallen 80% from their peak, to below 1 million units for the first time since the 1940s. Recovery will be slow because of the large number of vacancies for both homes and rental units. He predicted housing starts to remain below 1 million through 2010 and “maybe 2011. We won’t see healthy levels for many years to come,” he said. “The housing market is starting to move a little, but there are too many factors dragging it down.”

Those factors include the prospect of continuing high unemployment. Companies have been spooked by this downturn and will be reluctant to hire until recovery is vigorous enough to force their hand. Many will instead look to outsourcing and temporary labor.

“Consumer debt will stall recovery,” Kohler added. “It’s coming down, which is good for them but not good for the economy.” Even when consumers want to borrow, tighter lending practices will further tighten belts and slow recovery. Kohler predicted 2-3% GDP growth in 2010, “but construction will be slower to recover.” He did say the plumbing market will grow about 10% next year.

Kohler predicted consolidation will return among plumbing manufacturers and distributors when recovery gets underway. He noted that many of our industry’s acquisitions were by foreigners and private equity firms, and referenced a study saying that “over 70% of acquisitions don’t add value.”

Longer term, Kohler opined that when recovery finally does come, we will be faced with a different consumer mindset. “The focus will be more on value, less on luxury,” he said.

Despite the hard times, he urged ASA members to “stay relevant, disciplined and entrepreneurial.” His slide presentation drew attention to expansion efforts by various Kohler distributors despite the downturn.

“Stand for more than what you make or sell,” he concluded. “Sustainability is very important.”

George Will

Nobody comments about national and world affairs with greater eloquence and authority than this nationally syndicated columnist and TV pundit. He spoke at an ASA “Power Lunch” preceding the congressional visits and offered typically brilliant insights into public policy and American society, packaged with wry humor. My favorite parts:

Will followed ASA lobbyist Patrick O’Connor to the podium after the latter’s legislative briefing to members, and picked up unscripted on O’Connor’s advice about looming estate tax reinstatement. “Since when did death become something to tax?” asked Will rhetorically. He drew attention to the irony that a rich person can blow a fortune on a gambling excursion to Las Vegas and not be taxed on his frivolous use of money, while more productive inheritances get hammered.

Will’s overview of our current political situation is that we have entered an era of “state capitalism,” which he explained as a retreat from the trend away from government intrusion into the economy sparked by Margaret Thatcher and Ronald Reagan.

Our looming fiscal crisis over Social Security has a simple solution, said Will - gradually increase the eligibility age in view of the fact that the American population is living much longer into retirement than when the Social Security Act was first enacted in the 1930s. He noted that when the legislation first came about it set 65 as the age for receiving benefits - at a time when the average life span was 62. “They were shrewd!” he said of the legislators of that era. Early recipients tended to receive benefits for only a few years before passing on. None of the original planners foresaw a time when people would be collecting Social Security checks for decades after retiring. “The solution is easy, but it’s politically impossible,” he concluded.

Alan Beaulieu

This economist from the Institute of Trend Research has become a familiar choice for speaking engagements industry-wide because he’s one of the few witty economists with an entertaining style. That shouldn’t obscure the fact that he also tends to be right on with his predictions, which tend to focus longer term than most. I first heard him speak at an NAW Executive Summit in January 2007, in which he predicted recession to occur in 2009-2010. He appeared at the same event in January 2008 and repeated the warning, adding: “It could be an ugly one.”

Speaking at ASA’s “Future Trends Luncheon,” Beaulieu’s economic forecast closely coincided with David Kohler’s outlook for slow recovery, although he did offer that “you’re going to like 2011 if you’re in construction.” Some predictions and analysis from Beaulieu:

The credit crunch passes in 2011 leading the way to recovery, but also with inflation ramping up. This will cause the Fed to tighten up. Oil prices will go up to $120 a barrel by that year, which will tend to slow growth but also will have the countervailing effect of pushing people into the marketplace to buy cars, homes and more big ticket items before prices go up. “Buy commercial property next year to hedge against inflation,” advised Beaulieu.

“Staggering deficit numbers” represent the biggest long-term threat to our economy. Even the Obama Administration projects a $500 billion deficit as a best-case scenario, although its budget projections are based on unreasonably optimistic assumptions, such as 6.2% economic growth in 2011, a level not even seen in the bubble years. “This is insane. Somebody is inhaling,” Beaulieu wisecracked.

Ominously, he predicted that by 2015, 34.1% of the federal budget will go to paying interest on our national debt, up from 13% in 2009.

Beaulieu predicted the stock market is headed for a sluggish decade and won’t reach a new high until 2020. He reasoned that the massive wave of baby boomers reaching retirement age will be taking more money out of the market than people are putting in.

“The bottom is near, so look for opportunities,” he concluded. “You can’t change the wind, but you can adjust the sails.”

Steve Maxwell

This water industry consultant was the only less than dynamic speaker I heard at ASA, but the content of his PowerPoint presentation from which he read almost verbatim was absorbing. The title of his address at the IPD Future Trends Strategy Session said it all: “Water: The Next Oil.” Key points:

2.5 billion of the world’s people live without any sanitation system. 95% of the world’s cities dump sewage into natural waterways. By 2050, 50% of the world’s people will live with chronic water stress.

Complex and sometimes contradictory regulations drive our nation’s day-to-day water business. EPA-mandated quality reports from water utilities create more problems than they solve. That’s because they fail to reflect that most water supplies are cleaner than before the EPA reporting mandates, but consumers don’t understand that.

Water is too cheap, yet there are “few good investment vehicles” at present, according to Maxwell.

An estimated 15% of U.S. fresh water supply is wasted due to infrastructure leakage. Yet hard-strapped public utilities have no realistic way to come up with the money needed to repair the pipelines, or to comply with increasing environmental mandates. “More privatization is coming,” Maxwell warned, “or else more noncompliance.” He noted how ironic it was that quasi-socialist European countries like Germany and France have far more private ownership of water utilities than the U.S.

Another noteworthy program at this year’s ASA convention was a Peer Networking Session. Read more about it in my Editorial column.