2014 Outlook: Potholes In The Road Ahead

2013 Charlie HallThree major policy challenges are converging in January that will set the stage for the economy early into 2014: budget, Obamacare and the debt ceiling. It’s the ultimate three-ring circus.

Government spending authority as part of the latest continuing resolution expires in the middle of the month, just three weeks ahead of the debt ceiling deadline of February 7.

There is also likely to be ongoing agonizing about the implementation of Obamacare. January 1 was the deadline for individuals to have insurance. If the website isn’t completely fixed or if young and healthy Americans haven’t yet signed up for coverage, insurers will begin panicking and Obamacare itself could start to unravel. Millions of healthy individuals are needed in the exchanges to subsidize the costs of treating sick and elderly patients.

With his approval ratings exploring new lows, Obama has little political capital for leverage. He won’t be able to run the tables on all three of these major issues. He will have to give somewhere.

Politics aside, even though there were plenty of headwinds in 2013 and the attitude today may be one of caution and uncertainty, there is a resiliency that should embolden even the most jaded and give a bit of hope heading into 2014.

Business As Usual Or Cause For Concern?
Some economic indicators point to some concerns in the second half of 2014 related to a recalibration that is expected to occur in the stock market some time during the summer. This correction is projected to be mild, however, and has been referred to as the economy running over a pothole rather than swerving into a ditch.

Interestingly, some of the more infamous economic modelers are inferring that the fallout from the financial crisis and the Great Recession have returned the United States to a more normal sequence of business cycles. They maintain that we are exhibiting economic behavior closer to the long-run average (33 cycles between 1854 and 2009) where expansions were shorter (about three years as opposed to the post-1961 average of six years) and contractions a bit longer (18 months) than the 12-month contractions that are the post-1961, seven-cycle norm.

By the long-run standard or even by the full post–World War II (1945–2009) standard that saw expansions averaging 59 months, the current expansion, at 54 months, may be getting close to its end. The standard deviation of postwar expansions is 33.4 months, so we are well within the “window” for the onset of a recession.

The teachable moment for green industry firms, in my mind, is that the Lake Wobegon environment for our industry has dissipated. It’s time to develop some specific strategies for competing in economic periods of expansion and contraction. We have the ability to make money in the midst of both types of environments, but we have to be proactive in doing so. This means being acutely aware of driving forces such as demographic trends, housing trends, etc.

The Housing Market Is Strong But Not Stellar
The strength there has been in the economy during this latest period of expansion has been due to the invigorating influence of the housing sector. Housing starts were expanding at a 31 percent annual rate at their peak last March, but that slowed to a 26 percent annual rate of expansion by the close of 2013 — still very good but not stellar. The downward projection in the rate of growth is likely to continue into 2014, but the double-digit gains in home values and the 1.2 million projected housing starts (highest levels since 2008) are major boosts to consumers and contractors.

In the year ahead, real GDP is expected to rise at a 2.3 percent pace, driven in large part by improvement in consumer spending, business fixed investment and residential investment. Consumer spending for big-ticket items remains relatively strong. The modest pickup has been driven by better payroll growth and a marked improvement to consumer balance sheets.

Household assets are now greater than their pre-recession peak as home prices and the stock market have helped to restore balance sheets. However, some of the gain in home prices and the stock market has been boosted by securities purchased by the Federal Reserve to help keep long-term rates low. With rates at such a low level, investors searching for yield have put money to work in hard assets like homebuilding and the stock market.

Will The Fed Taper Or Is The Market Strong Enough?
Many are concerned that once the Fed begins to scale back its asset purchases, some of the gains in the residential and stock market will dissipate. This concern raises questions about when the Fed will announce its intention to taper. Are fundamentals strong enough to continue to buoy the residential market when that happens? Let me explain this a bit.

The Fed has used quantitative easing (QE) to fuel growth. This means it started buying long-term financial assets or bonds from commercial banks and private institutions, aimed at reducing the yield on bonds that would have led to lowering of borrowing costs, and ultimately fueling growth. So far, there have been three rounds of QEs, popularly known as QE1, QE2 and QE3, through 2008 to 2013. When the Fed gradually reduces funding to this bond purchase program, it is called tapering.

It seems reasonable to assume that the actual process of tapering will be slow and gradual with the goal of minimizing any potential market disruptions. This is precisely where the difficulty resides. After all, the Fed cannot continue expanding the money supply at the current rate; therefore, the key issue is to taper with the least amount of market disruption. I suspect this will include sending up trial balloons to gauge the market’s reaction to various Fed actions, executing the tapering process and having contingency plans in place to address any significant issues that may arise.

What will be the specific impacts of tapering? Most believe that tapering will result in an increase in interest rates, especially at the longer end of the yield curve. This could have two detrimental effects:

  1. Higher mortgage rates. In this scenario, the housing recovery that is critical to a thriving economy could slow dramatically. Therefore, tapering at the present time would be risky.
  2. Cost to the federal budget. If tapering does indeed lead to higher interest rates, the increased cost to the federal budget would be a considerable impediment to fiscal policy health. I heard an interesting statistic recently that said if interest rates were to rise by one percentage point, it would completely erase the budget savings created from the sequestration.

Develop Your Operation’s Contingency Plan Now
The bottom line is that now is the perfect time to develop your economic contingency plans. When times are good, the goal is usually to grow the business. In an extreme downturn, you will have only one goal: survival. In a mild or moderate recession, however, you have room for additional goals. It is possible to make money during each of these economic scenarios, but you have to plan for it. As the saying goes, fail to plan and you plan to fail.

Topics:

Leave a Reply

More From Business Management...

April 17, 2015

Sakata Seed Uses California Spring Trials Display Plants To Give Back

Sakata Seed America is putting its post-CAST (California Spring Trials) plants and flowers to good use to support events in local California communities of Salinas and Morgan Hill. The plants, along with donations through Sakata's Charitable Giving Program, will support three fun-filled community events that promote healthy lifestyles and support the agricultural industry.

Read More
Hakonochloa macra Aureola v

April 17, 2015

Ornamental Grasses — A Few Thoughts

Grasses have been embraced by growers, landscape architects and retailers, and are an important component in wholesale and resale sales. Allan Armitage shares some popular grasses, one to avoid and a few to use with caution.

Read More
PW_CAST15

April 17, 2015

Allan Armitage’s Favorite Plants From Proven Winners, Syngenta And Danziger

Between visiting California Spring Trial giants like Proven Winners, Syngenta and Danziger, Allan Armitage saw a lot of great plants in one day. Despite the size of the challenge, Dr. Armitage finds a few favorites he thinks you should try.

Read More
Latest Stories

April 15, 2015

Redesigned SunPatiens Website Offers New Tools For Saka…

Sakata Seed America's new and improved SunPatiens website launched March 1, 2015 and provides growing information, marketing support, product location and many more tools to encourage consumer success with SunPatiens.

Read More
Farwest2015

April 15, 2015

Online Registration For FarWest 2015 Open, Discount Bef…

Online registration is now open for FarWest 2015, a green industry educational conference and tradeshow, which will take place August 27 to 29 in Portland, Ore. The show promises a full menu of classes, seminars and off-site events, plus a special benefit added this year for attendees.

Read More
Syngenta logo

April 15, 2015

Syngenta Names Chris Freeman Senior Key Account Manager…

Chris Freeman is the new senior key account manager for Syngenta Flowers, Home & Garden's Commercial Sales business in the Americas, effective March 2015. Freeman, who joined Syngenta in 2006, carries more than 25 years of experience in the agriculture and floriculture business.

Read More
Janeen Wright

April 13, 2015

Different Routes Lead To New Growth In Your Greenhouse

The path you take to success in your greenhouse may not be the well-traveled one, but the end result can still be the same — growth for you and your greenhouse business.

Read More
Restricting foliar pesticide applications on blooming plants to early morning or as dusk approaches in the evening reduces direct exposure to bees.

April 10, 2015

10 Steps For Protecting Crops And Bees

Bees stay safe and high quality crops thrive when you use bee-friendly practices designed to help both succeed. Griffin Greenhouse Supply Pro (GGSPro) has been actively discussing bee-friendly pesticide use for years. Based on its current understanding of the science and social factors at play, GGSPro currently recommends these 10 bee-friendly practices.

Read More
Lake Buchanan_LCRA

April 10, 2015

USDA Designates Areas Of West And Southwest As Drought …

The ongoing drought has resulted in disaster area designations in counties across nine Western and Southwestern states, including Texas, where some reservoirs are at or near historically low levels.

Read More

April 9, 2015

Altman Plants’ Online Cactus Shop Shows Strong Sa…

Altman Plants recently opened its new Cactus Shop, an online retail store that sells a variety of cactus and succulents. The store is a take-off of Altman’s original wholesale business, as the company started as a mail order catalog.

Read More
Dummen

April 8, 2015

Dümmen Group Welcomes Jim Devereux And Andrew Konicki T…

Dümmen group recently announced the addition of Jim Devereux and Andrew Konicki to its team. They are the newest members of the Key Account and Broker Support team for Dümmen, and will be responsible for building, developing and maintaining current broker and grower customer relationships.

Read More
Todd Woodfield

April 8, 2015

Sustainable Horticulture Pays Off

Practicing holistic horticulture has saved money and improved plant quality for Abby Farms. Its manager shares where the operation has seen differences from conventional production.

Read More
Gov._Jerry_Brown_California

April 8, 2015

California Institutes First Ever Statewide Mandatory Wa…

California Gov. Jerry Brown announced April 1 that, for the first time in state history, action will be taken to implement mandatory water restrictions, with the ultimate goal of reducing water usage by 25 percent. As Californians are pushed to conserve more, growers will need to think about how demand for products will be affected.

Read More
HRI logo

April 8, 2015

Horticultural Research Institute Accepting Scholarship …

The Horticultural Research Institute (HRI) is offering seven scholarships for the 2015-2016 school year, totaling $20,000. Applications will be accepted through May 31.

Read More
american-hort-logo

April 8, 2015

AmericanHort And State Associations Advocate For Workfo…

AmericanHort, along with roughly two dozen other state association partners, joined nearly 140 organizations in a letter to the House of Representatives responding to the Legal Workforce Act (H.R.1147), which is being voted on without provisions that would ensure legal workforce options for agricultural and seasonal employers. H.R.1147 would mandate that all U.S. employers use the federal E-Verify program.

Read More

April 1, 2015

Philadelphia Flower Show Draws More Than 250,000 Attend…

With more than 250,000 consumers attending the prestigious Philadelphia Flower Show in March each year, it's a great opportunity to get flowers and gardening products into the public eye. This year's show displays took on family favorites at the movies, with a focus on Disney and Pixar films. Check out some of the highlights in our slideshow.

Read More
protecting bees and pollinators video

March 31, 2015

New Video On Protecting Bees And Pollinators Educates H…

A new educational video that provides information on the horticultural industry’s essential role in bee and pollinator stewardship is one result of industry collaboration by the Horticultural Research Institute, AmericanHort, Society of American Florists and the American Floral Endowment. “Protecting Bees & Pollinators: What Horticulture Needs to Know,” narrates the current state of bee and pollinator health, provides information on factors that impact pollinators and the environment and underscores the beneficial role horticulture plays in providing healthy pollinator ecosystems.

Read More
DNA-logo

March 31, 2015

DNA Green Group Will Acquire Rijnplant

DNA Green Group and Riknplant have finalized DNA Green Group's acquisition of Rijnplant, meaning that the breeding and propagation activities in pot and cut anthurium, bougainvillea and heliconia will transfer to DNA Green Group.

Read More
Rose rosette on Knockout rose, April 2012. Photo credit: Alan Windham, University of Tennessee

March 25, 2015

$58 Million In APHIS Farm Bill Funding Will Support Hor…

Nearly $58 million as been allocated by the USDA's Animal and Plant Health Inspection Service (APHIS) to support the industry's Plant Pest and Disease Management and Disaster Prevention Program, under Farm Bill Section 10007. The program will support mitigation efforts for specialty crops, including providing research and other funding to address plant pest and disease priorities for the specialty crop industry, including floriculture and nursery crops.

Read More
AFE scholarship_Ryan Dickson

March 25, 2015

AFE Educational Grant And Scholarship Application Deadl…

Apply now for American Floral Endowment (AFE) scholarships or educational grants. Applications can be found online. For educational grants for 2015-2016, applications must be submitted no later than June 1. Scholarship applications are due May 1. AFE will award $40,000 in scholarships for 2015.

Read More

March 25, 2015

NASS Reports U.S. Honey Production Was Up By 19 Percent…

Honey production in 2014 from producers with five or more colonies totaled 178 million pounds, up 19 percent from 2013, according to a March 20 report from the USDA's National Agricultural Statistics Service (NASS).

Read More