Builder market, CARE & recycling, Jack Mishkin: Strategic Exchange

By Kemp Harr

National Association of Home Builders economist David Crowe spoke last month at the annual CARE meeting in Seattle and his message was upbeat about where the economy is headed for the next couple of years. He acknowledged the GDP dip in the first quarter of 2014 (when the growth rate fell to 0.1%) but predicted that the trend line for the remainder of the year will jump back to the 3% to 4% growth range, and remain there at least through 2015.

Crowe blames the current softness in the housing market on the young adults who are reluctant to purchase a home and who are either staying home with their parents or choosing to rent an apartment. He predicts that this behavior for the younger demographic will change once they start to feel more job security and they believe the housing market has indeed stabilized. He pointed out that as first time homebuyers step into the market, existing homeowners are able to trade up, so the whole system has slowed based on their reluctance to buy in. Normally 6% of all homes change hands on an annual basis and today that number is closer to 4%.

He presented data that indicates that most of the other obstacles in the equation have been resolved. Employment levels have almost recovered to where they were in 2008; mortgage interest rates are low; home prices are at 2004 levels—still 13% below the pre-recession peak on average—and consumer spending on automobiles and home accessories is robust. Household formations, which are the pixie dust for housing, are ticking up as well but still have a long way to go. The pre-recession peak was 1.4 million new households per year, and 1.2 million is considered healthy. The current pace is around 600,000.

Crowe said that we are on the threshold of more consistent growth, especially in the single-family builder market. He predicts that this sector will increase 20% in 2014 and 55% next year. Meanwhile, he expects multifamily to level off and remodeling activity to track at about the same pace as GDP (+3.8%). The two main drivers will be the renters starting to own and the younger group gaining enough confidence to step out on their own.

CARE’S ISSUES CONTINUE TO EVOLVE
CARE’s (Carpet America Recovery Effort) annual conference was held in Seattle, Washington this year and I attended it for the first time in several years. The organization seems to be going through some major changes now that the memorandum of understanding that created the organization has expired (see box on right). Since its launch 12 years ago, CARE has realized some major accomplishments but it still faces some steep challenges ahead. Its mission from the very beginning has been focused on reducing the tonnage of post-consumer carpet that ends up in America’s landfills. It was estimated back in 2002, when CARE got its start, that roughly 4.5 billion pounds of worn-out carpet ends up in landfills each year. CARE’s stated goal from the onset was to divert 40% of the total pounds of discarded carpet by 2012. CARE’s annual report for 2012 indicates that 351 million pounds of carpet were diverted, which that year was a diversion rate of 10%. So, at the end of ten years, the group reached 25% of the goal that had been established in January of 2002. The cumulative diversion over that ten year period is 2.6 billion pounds.

CARE’s early focus was centered on building a network of used carpet collection centers. Back then, Shaw Industries was in the middle of ramping up its Evergreen Nylon Recycling facility, which it acquired when it bought Honeywell. To make this facility run, it needed a steady supply of post consumer nylon 6 carpet. CARE was instrumental in building that network. Interestingly enough, as the network started collecting nylon 6, no high-value end-use for used nylon 6,6 had been developed, so the collectors starting choking on piles of 6,6 carpet. Fortunately, that issue was eventually solved as recyclers like Wellman Plastics worked to create markets for the nylon 6,6 waste stream. Today, many of the molded black plastic parts found under the hood of cars are made out of post consumer nylon 6,6.

At this year’s meeting, there was a new elephant in the room that’s clogging up the system for the collector network, and it’s PET carpet. Much like nylon 6,6 several years ago, no one is willing to pay for used PET carpet because at this point there is a limited high-value use for its components. Ron Greitzer at LA Fibers in Los Angeles is able to take some of it and convert it into carpet pad, and there is value for it as a fuel source (waste-to-energy) but today the recycling economics for PET carpet don’t offset the cost of collecting it. To make matters worse, the use of PET carpet has been growing exponentially in the past several years, so the collectors have far more than they can handle. Not only has PET grown from 10% (in weight) of the total carpet fiber used in the industry to 40% in the last decade, many of the markets that use PET carpet (i.e. rental apartments) have a faster turnover, so it ends up in the waste stream sooner. Hopefully a solution can be developed similar to what has happened with nylon 6,6.

You can’t talk about CARE without mentioning AB 2398, the California legislation that added a nickel per yard “fee” to the sale of all new carpet sold in California starting in July of 2011. Once this legislation passed, CARE was appointed to collect the revenue and use it to offset the costs of diverting used carpet in California from the landfills. Cal Recycle monitors this activity.

This type of legislative action falls into the category of activity that’s called EPR, or extended producer responsibility. Many states have passed this type of legislation for used tires and car batteries, so carpet is just one of the many categories where EPR legislation is considered.

I discovered at this meeting, however, that several states are considering EPR legislation focused on the issue of carpet disposal. Those states are Connecticut, Illinois, Minnesota, New York and New Jersey. Some states have calculated that carpet makes up as much as 3% of the total waste that ends up in their landfills. Walter Willis, with the Solid Waste Agency of Lake County, Illinois, spoke at this year’s CARE meeting. He told the group that carpet would not have been on his radar if the industry had not rapidly swung toward using PET, which has no recycled value and therefore ends up in his state’s landfill.

Brendan McSheehy, who was elected just prior to this meeting to serve a two-year term as chairman of the board for CARE, told me that a subcommittee of sorters, recyclers and entrepreneurs from the membership is focused on finding solutions that might curb the EPR legislative movement. He feels that if the states see a voluntary effort by the industry to find an economical solution to the PET issue, they might stand down.

It deserves mention that Brendan is the first CARE board chair who is not also an officer at the Carpet and Rug Institute. Hopefully Brendan, who has a chemistry education and is employed by Universal Fibers as its vice president of innovation and sustainability, can lead the CARE organization to find a viable solution for post-consumer PET carpet.

CARE'S PARTNERSHIP

Back in 2002, CARE was established as a joint industry-government partnership with the signing of a formal Memorandum of Understanding by the carpet industry, state governments, the U.S. Environmental Protection Agency, and a council of recyclers. The signatories were respresentatives from seven states (Minnesota, California, Iowa, Oregon, North Carolina, Massachusetts and Wisconsin); the Carpet and Rug Institute; four carpet mills (Lee's, C&A, Mannington Commercial, and Interface); the U.S. EPA; a researcher from the University of Tennessee; and the Northeast Recycling Council. Of the four mills that signed—all of which were focused in the commercial sector—only one of the executives, John Wells with Interface, still serves an active role in the business. As spelled out in the nine-page document, the carpet industry would form a third party organization (CARE) to focus on achieving the 40% landfill diversion goal within ten years.

JACK MISHKIN: DESIGN LEADER

When young Jack Mishkin and his father, carpet industry veteran Ralph Mishkin, started Bentley Mills in 1979, the commercial carpet industry was small and its products were uninspired. But Jack’s unique design vision would change the commercial carpet industry forever. Instead of following the prevailing practice of making products driven by manufacturing, he created beautifully designed carpets by engaging designers and architects in the process.

The result was transformational. The idea of giving designers what they wanted was so successful that Bentley quickly became the darling of the commercial market. Jack not only made products that were beautiful, he changed commercial carpet from a price-driven building product to a high quality, expensive-looking textile. Bentley’s annual sales soared from $3 million in 1981 to $180 million a year by the end of the decade and the products Jack Mishkin made were rated best in design year after year. When Bentley was sold to Interface Flooring in the early ’90s, Jack continued to innovate, partnering with Larry Jones to build Monterey Carpet into the industry’s design leader in that decade. When Monterey was sold, he started his own area rug company, J Mish, and worked with Anthony Minite at his old company, Bentley Prince Street, where he continued to make products with the signature Mishkin look.

The commercial carpet industry lost one of its shining stars when Jack Mishkin died on May 9 and we all lost a dear friend. Jack was a modest man. I doubt he thought much about what an important role he played in changing commercial carpet from an uninspired commodity product into a beautiful, high quality textile. He’ll be sorely missed by all of us.

—FRANK O’NEILL

If you have any comments about this month’s column, you can email me at kemp@floorfocus.com.

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