• Contractingbusiness 665 0111commercialconstruction
    Contractingbusiness 665 0111commercialconstruction
    Contractingbusiness 665 0111commercialconstruction
    Contractingbusiness 665 0111commercialconstruction
    Contractingbusiness 665 0111commercialconstruction

    Here Comes the Sun?

    Jan. 1, 2011
    In the News The Federal Reserve Board has announced that it will pump at least $600 billion into the banking system through another round of Quantitative

    In the News

    The Federal Reserve Board has announced that it will pump at least $600 billion into the banking system through another round of Quantitative Easing, known as QE II. For business leaders, QE II will not have much of an impact on boosting economic growth. Given ongoing tight credit conditions, which are not the result of a lack of bank reserves, it's unlikely that enough of the newly injected reserves will filter through the banking system into Main Street businesses to have a demonstrable, favorable impact. Bank of America seems to have a better plan. BOA plans to hire 1,000 people in 2011 whose job it will be to lend money to firms with annual revenues of less than $3 million. That's a good example of a private company making money in the private sector, and it should make a difference.

    On the other hand, QE II may lead to ongoing weakness in the dollar and inflation of commodity prices and some asset values. The most significant, near-term, positive effect on Main Street businesses will be a boost to exports as the dollar weakens, although this depends on other countries refraining from, or being unable to, devalue their currencies as quickly or effectively as the Fed. However, a weakening U.S. dollar also means the potential exists for higher commodity prices and higher import prices for intermediate and finished goods. Higher input prices are likely to become a reality before higher consumer prices. This suggests a coming squeeze on profits for businesses that aren't prepared for either increasing.

    Powering Forward

    The consumer is doing an impressive job of keeping the U.S. economy going onward and upward. Retail sales (deflated to eliminate the impact of inflation) are 2.0 percent higher than this time last year, with more good news to come. Christmas 2010 will come in above 2009, putting profits into the pockets of retailers and distributors, and paychecks into the pockets of the 27,000 seasonal workers who have been hired thus far. The importance of this is hard to overstate. Without strength in this sector, HARDI members could count on a return to recession in 2011.

    Underneath the consumer trend is the burgeoning good news in employment. The trend is not impressive, but at least it is positive. We should see additional gains in employment in 2011 as a result of ongoing economic expansion. In addition, slower productivity gains may be signaling the need for more employees because employers have squeezed about all they are going to out of the existing workforce.

    Housing

    The good news is that annual Housing Starts are 1.2 percent above the year-ago level. The bad news is that we expect the year-over-year increase to be brief. That means the annual data trend (12MMT) will be doing well to remain stable. Expect stability to give way to mild decline between now and mid-2011, with a stronger housing trend developing in the latter half of the year. “Stronger” in this case is a relative term; don't look for new construction to provide any more business then than you have now. There is some good news for many homeowners in that median home prices were up 2.5 percent in the third quarter of 2010, compared to the third quarter of 2009.

    Existing Home Sales have been dropping over the past four months and are 21.1 percent below the previous year. The legal problems with foreclosures are only partly to blame. There is a lot of inventory out there, and it will take a long time to absorb. HARDI members will continue to find their strongest opportunities in existing home renovations and home maintenance.

    Commercial Construction

    Commercial Building Construction spending has dropped 55.0 percent since the April 2008 record high. The seasonal decline in the quarterly spending figures is worse than normal. We should anticipate further cyclical decline. The business cycle pressure has shifted to positive in that some rates-of-change are rising, but it will be a while before the amount being spent improves. Expect a slow turn to recovery in the second half of 2011.

    Square feet of new retail building is 74.3 percent below the early 2007 high but there is good news in that the data trend inched higher in September. The square footage figures have improved to 2.5 percent above the year-ago level, which is great news in that it signals increasing activity and more opportunities for HARDI members in 2011.

    HARDI members should be encouraged by two more pieces of news. Vacancy rates for retail space held steady in the third quarter at 10.9 percent. Rents also remained flat, compared to a 0.3 percent decline last quarter, also suggesting that the market is stabilizing.

    Make Your Move

    Make Your Move is the title of our book and our radio program. More than that, it is the axiom we seek to instill in business leaders in every phase of the business cycle. We are at a critical phase of the business cycle in that limited opportunities are upon us even as uncertainty keeps too many companies moribund. Look at the leading indicators that ITR® tracks and you'll see that the United States, Canada, Mexico, Europe, South America and Asia are going to experience more economic expansion in 2011. It will be tepid, but it represents a real opportunity to gain market share.

    Spend money on product knowledge and on making yourself indispensable to your clients through value-add service, then leverage that into new clients and new markets. Gain the right to ask your clients what else you can do for them, remembering that can only come after you have proven yourself in your existing relationship.

    If you want to stay abreast on the most current happenings in the economy, listen in weekly at www.voiceamerica.com and select the business channel every Monday at 4 p.m. (Eastern). Programs will be stored in a library if you want to catch up on a previous broadcast.

    Alan Beaulieu is president of the Institute for Trends Research and HARDI's chief economist. For more information, contact Alan at 603/796 2500 or [email protected] or visit www.itreconomics.com.