25 Jan Commercial Construction Spending Continues to Increase
In our June 2012 newsletter, we began advising readers that the commercial construction recovery was on its way. November 2012 was the second consecutive month of commercial construction growth and December numbers to continue the trend. Some clients are feeling the improvement, and depending on your sector or location will dictate when you will see the improvement in your business.
So what is our next step?
Economists expect 2013 to be a slow growth year with the government using monetary stimulus policy to spur the economy. Employment will increase, however unemployment (a trailing indicator) will remain high. Technology will allow companies to do more with less manpower. Part time staff (30 hours or less) is expected to be the new “full time” driven by the Healthcare Act.
Most economists expect 2014 to be a mild downturn. Their reasons vary from a lack of a financial solution to Washington’s spending and the fact that existing federal contracts will be ending. The often overlooked fact is that before a state or federal contract can be issued, all the funds have to be in place. The fiscal cliff was never a cliff, but rather a decline experienced as existing contracts expire and cannot be renewed combined with new tax laws that will gradually take effect.
The recovery trend is expected to be slow and gradual. Factors affecting the speed of the recovery are increased taxes, shortages in building products and inflation.
- On January 1st every American had their taxes increase by 2.0% (2% social security). The feedback is that it is too early to determine how the spending patterns will be altered.
- Americans are searching for homes. With banks increasing their lending activity at low rates, Americans are looking to move into a home. Residential real estate activity is increasing and the inventory of new homes is near its low causing existing home prices to rise. It is expected there will be a 30% growth in new home construction this year, causing shortages in building materials such as lumber and cement (the main ingredient for concrete). Price increases have already been announced.
- Despite the government’s policy designed to maintain a hold on inflation, prices continue to rise. The construction industry’s material pricing continues to trend upward and we expect the union labor market to secure increases during the upcoming contract renewals.
As we start 2013, the future outlook and business opportunities can be summarized in the following key points:
- All lending indicators are positive and pointed up, meaning we should see a positive trend to the economy.
- Employment is rising – companies who have right sized will be adding to their staffs. Small business will be the drivers – DRB Consulting has added to its staff and the three companies I am coaching all have been making select hires – now is the time to find the right talent for the coming growth cycle.
- Banks are lending – Now is the time to cultivate a banking relationship. Growing companies need cash and as we start the growth curve, bankers are looking to lend money to strong companies. Good companies with improving balance sheets will also have a lending opportunity so take your banker to lunch.
- Retail sales are rising – the consumer is releasing their cash. Find a benchmark where your business was at its current size and use that point to measure your progress and staff size. Remember your successful moves and repeat them. Comparisons to 2006 and 2007 are a “fools game”. Using those levels as an indication on when to act will cause a business leader to be late to the game. We may never see those levels again so forget them.
By the end of 2014 it is projected that Europe will have its house in order which is one reason why many economists agree that from the last Quarter of 2014 into 2016 and 17, we should see a go-go period affecting all businesses. This makes it even more important that businesses invest in the right people now to get them ready and trained for the good times.