What a difference a few weeks make. But a month ago we were locked into an extended hot drought that was hurting most disciplines in the Green Industry. Mowers weren’t mowing, landscapers weren’t planting, nurseries and sod growers weren’t shipping product, etc. Irrigators were busy, but mostly with renovation and repair work.
Hurricane Isaac and cooler temperatures brought some relief. However, the season is not over yet. As an indicator, NOAH is predicting temperatures to be higher than normal through December and precipitation to be at normal levels. As of this writing we are back into a period of no rain for most of our service area. We’ll have to watch how the rest of this year plays out.
For 2013, NOAH is predicting higher than normal temperatures and lower than normal rainfall through June. I’ve seen that pattern three times now when we have drought conditions to the degree we experienced this summer.
The Green Industry always has to deal with the weather, so we are all used to that. The economy causes problems far less often. This time though the economy has been a real pain. After four years we are still trapped in a tepid and uncertain recovery. Chris Varvares, with the firm Macroeconomic Advisors, said recently, “What’s happened today is it’s almost as if the global economy is on a knife’s edge”.
Dangers aplenty lurk. What will happen in January 2013 when a multitude of tax increases hit us? How badly will the economy be hit by the Obamacare taxes and fees in 2013 and 2014? Will Europe be able to pull themselves out of their deepening recession?
For the rest of 2012 the analyst types say we will plod through at the same rate of growth we’ve seen so far this year. Expectations are for a GDP of 1.5 to 2%. Anemic, but at least positive. Additionally, most say we’ll see about the same, maybe a little higher GDP, in 2013.
So as we all start planning our 2013 business, we will once again have to very diligent in our expectations, revenue generation, and expense control. Life is not getting easier yet!
Housing
Good news for most parts of the country in that sales and values are increasing. The realtors and banks are a little happier!
New construction is still depressed and will remain so. The inventory of unsold homes has fallen drastically from around 4.5 million to 3 million. New construction will grow when the inventory drops a little further.
In rounded numbers, our nation presently creates about 1.2 million new households each year. New construction is handling about half of that, so that leaves 600,000 existing homes being removed from the unsold inventory each year. At our current market size, to be healthy we would have an unsold inventory around 1 million homes. Which means we have an unsold overstock of 2 million houses. At current rates, it will be another 3-4 years to reach a healthy unsold stock level.
13 million homeowners are “underwater” with their mortgages. 3.1 million homeowners are in distress or facing foreclosure. We still have some road to travel before the housing market can be considered vigorous. Banking your business on new home construction in 2013 therefore, seems to have a high risk factor.
Housing values are again increasing. The recession destroyed more than $7 trillion dollars in home value. How much value increase is happening depends on the market or region of the country. Our area is seeing modest growth and a few cities are stagnating.
Ingo Winzer with Local Market Monitor produces a 3-year home value prediction. How, well it’s really technical and involves an odd form of magic, but anyway, Ingo says we should look for a nationalized home value growth rate of 7% over the next 3 years. Others, including Moody’s Analytics, are claiming it will be 10%.
Commercial Construction
The American Institute of Architects elevated their 2012 construction spending numbers for 2012 to an increase of 4.4%. (Up from their original projection of 2.1%) Even better news is they are now projecting 2013 to have an increase of 6.2%!
The categories driving growth are industrial facilities (factories), warehouses, hotels, retail, and office buildings. The categories that will have virtually no growth are health care, education, amusement, recreation, and public services buildings. Could it be the driver of commercial construction growth will shift from public to private funding? I hope so!
Another good factor (in my opinion) is the move by American companies to bring manufacturing jobs back home from the sweat shops in China and other 3rd world nations. It appears the costs for labor, transportation, insurance, and quality has been rising to the point it makes sense. But the benefits are primarily seen in the States with “business friendly” environments of lower taxes, fewer regulations, minor or no union hassles, and amicable State governments.
Basing a business on new commercial construction doesn’t appear much more attractive than new residential, especially when considering the low margins such jobs produce. But once again little growth is better than no growth.
Renovation and Repair
So new construction is on a slow road. Renovation work has been growing at double and triple the rate. There is considerable pent up demand and people are now feeling secure enough to satisfy some of it. Whether it’s renovating a patio area, a lawn, and irrigation system, or planting beds there is a lot of work being purchased.
The drought appears to have helped creating replacement business for dead plant material and lawns. A large increase in irrigations system repairs and renovations carried many irrigation dependent contractors the past couple of seasons.
Renovation work involves smaller amounts of money and can be done in phases. People want a nicer home living environment so they are buying it. This trend will continue and grow.
Uncertainty
American businesses adapted to the recession and have been operating profitably. Most are in good health and would love to grow and start new things. So why is not the economy doing better? Ownership and/or leadership are scared of the many unknowns and possible threats.
Too many questions about Federal regulation, taxes, and policy remain. Too many concerns about Europe and China. And a growing sense the Federal government and the Federal Reserve have played all their cards leaving no safety net if another recessionary cycle kicks in. Because the economic environment is so uncertain, businesses are holding on to their cash and minimizing debt so they are prepared to weather a possible future storm.
When talking with business owners or leaders, they say the upcoming elections will determine a lot about their future business plans. Such thought is so pervasive we are seeing a slow down in business activity in anticipation of the election. Many decisions are on-hold until November 7.
It is clear the Fed is running out of bullets. Chairman Bernanke has to see that each move the Fed has made has produced diminishing market reaction with diminishing duration. They can’t do more of the same and expect any more result. We need a new direction.
A lot of words, so to wrap up; for 2013 weather looks favorable and the economy will be about the same and 2012. That’s enough to make a business plan. Here we go again!
