Ellison Chair in International Floriculture
Ellison Chair in International FloricultureTeaching, Research, Extension and Service

Confidence is climbing

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The Conference Board Consumer Confidence Index™, which had improved considerably in April, posted another large gain in May. The Index now stands at 54.9 (1985=100), up from 40.8 in April. After two months of significant improvements, the Consumer Confidence Index is now at its highest level in eight months (in Sept. 2008, it was at 61.4).

This is a big enough bump in consumer attitudes that we can be pretty sure it’s not just a temporary blip. Although consumer confidence isn’t the only thing to worry about, it was the collapse of consumer spending that pushed us over the edge (the housing crash itself did not send us into recession). Now we’re likely to see an improvement– albeit not a return to the exuberant spending of 2005 — but a measured increase in spending.

Housing report carries a mixed message

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Today’s housing reports indicates that building permits in April 2009 decreased 3.3% from March and declined 50.2% from April 2008, to 494,000. Housing starts in March 2009 decreased 12.8% from the prior month and declined 54.2% from the prior year, to 458,000.

On the surface this appears to be more bad news. But there is a silver lining. Behind the headlines (interestingly, the same was the case with retail sales), the numbers didn’t look as terrible.

First, with record inventory why are people rooting for additional supply? Second, the large, and unexpected, decline in housing starts is driven solely by a huge drop in multi-family housing starts, which dropped 46.1% to only 90,000 at an annual rate. This looks like a payback for a large increase in February when multi-family starts rose 65.6%. In addition, single family starts rose 2.8% while permits rose 3.6%. This trend, if sustained in coming months, would suggest that single family housing starts are in the process of bottoming and we may be starting the long, slow recovery. As I have said before, regional variations do exist so be wary of painting with too broad a brush stroke.

Warning signs that a business is in trouble

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From the latest GrowerTalks: Long before the bank says NO and the final profit and loss statement bleeds red ink, there are warning signs that a business may be in trouble. Whether you’re optimistic about your future or feeling a wee-bit stressed these days, it’s crucial to monitor for early indicators of coming problems. Think of it as preventative maintenance—something you’d give your vehicle in order to fix the little problems before the engine blows….continued.

Several folks, including myself, were interviewed for the article. Click here for the full scoop.

What consumers are still doing

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Despite the recession, there are still some activities consumers are willing to spend their money on. Sageworks, Inc., a firm that tracks private-company financial performance, has compiled a list of seven. Number 2 signals opportunity for the landscape service sector.

  • 1) Repairing their cars instead of buying new autos. Auto repair shops grew their sales by an average of 2.4% over the last 12 months. In contrast, car dealerships saw their sales decline by 9.7% in the same period.
  • 2) Remodeling and repairing their homes instead of moving. Building equipment contractors (such as electricians, plumbing and heating contractors) saw their sales increase by 4.6% in the last 12 months.
  • 3) Shopping at grocery stores more than eating out. Grocery stores experienced average sales growth of 6.7% over the last 12 months. Sit-down restaurants saw growth of 3.9% in the same period.
  • 4) Attending technical and trade school. Trade and technical schools saw their top-line sales grow by 7.8% in the last 23 months, compared to growth of 5.9% in 2007.
  • 5) Going to the dentist. The average dentists’ office experienced sales growth of 6.9% in the last 12 months, up from 4.9% in 2007.
  • 6) Getting personal care services such as haircuts and manicures. Hair salons, barber shops, nail salons, and skin care providers experienced an average of 4.5% sales growth in the last 12 months.
  • 7) Visiting an accountant. Accounting firms saw average top-line revenues grow by 10.2% over the last 12 months, putting the accounting industry in the top 20 industries in the country by sales growth.

Fed Forecast — 3rd Qtr Turnaround

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The Philadelphia Federal Reserve released its Second Quarter 2009 Survey of Professional Forecasters today, and the consensus forecasts for quarterly real GDP through 2010:Q2 are displayed below. The consensus forecast is for negative output growth to continue in the second quarter (-1.5%) of 2009 before turning positive in Q3 (.40%) and Q4 (1.7%), continuing into 2010 with growth of 2.2% and 2.9% in the first two quarters.
HT to Mark Perry for the graph.

The truth behind the latest labor stats

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WASHINGTON (AP) — The Labor Department reported Thursday that the number newly laid off workers applying for benefits dropped to 601,000 last week. That was far better than the rise to 635,000 claims that economists expected. But the total number of people receiving jobless benefits climbed to 6.35 million, a 14th straight record.

There’s one small problem with the bold statement above. The population of the U.S. has roughly doubled since the 1950s, so comparisons of today’s unemployed (unadjusted) to past periods is meaningless without adjusting for the population. The current number of unemployed (6.2 million average for April) is about 2% of the current U.S. population (estimated 306.56 million for April), which is still below the 2.12% level in 1975. So the claim of a 14th straight record for Americans receiving jobless benefits is not accurate, after adjusting for the size of the U.S. population.

Retail Rebound?

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May 7 (Bloomberg) — Wal-Mart Stores, the world’s largest retailer, reported comparable-store sales for April that rose more than analysts expected. Revenue from U.S. stores open at least a year increased 5%, excluding gasoline sales, in the four weeks through May 1, the Bentonville, Arkansas-based company said today in a statement. That exceeded the 3% average estimate compiled by Retail Metrics Inc.

U.S. store visits rose the most in seven months, spurred by demand in the grocery, health, home and entertainment categories, Wal-Mart said. Some consumers spent more freely on sporting goods and other discretionary merchandise after gasoline prices and payroll taxes dropped. The shift of Easter to April 12 from March 28 in 2008 also lifted sales.

Target Corp. announced Thursday that net retail sales for the four weeks ended May 2 were $4.45 billion, up 4.5% from the comparable period last year.Minneapolis-based Target (NYSE: TGT) said first-quarter highlights included better-than-expected same-store sales and gross margins, favorable retail expense performance and credit card results that were in line with prior guidance. Target’s April results far exceeded those for the first two month’s of the company’s fiscal first quarter. Same-store sales were down 6.3% in March and 4.1% in February.

The impact of increased savings

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Two forces that until recently turbo-charged US consumer spending—growing household debt and a falling savings rate—have gone into reverse. In late 2008, as households started reducing their indebtedness and saving more, consumption tumbled.

New research from the McKinsey Global Institute shows that the economic impact of further US consumer deleveraging will depend on income growth. Without it, each percentage point increase in the savings rate would reduce spending by more than $100 billion—a serious drag on any recovery. Relatively healthy income growth, on the other hand, would help households reduce their debt burden without trimming consumption as much.