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...
Hendriks-Half-Open-Roof_GGS

March 26, 2015

10 Greenhouse Products For First-Rate Growing Environments

From coverings to fork-lifts, greenhouse suppliers offer a variety of products to make growing easier. Check out the slideshow to learn more about these, plus several other products that can offer you value, versatility and durability.

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 Horticulture Priorities

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 Deadlines Approaching

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
Latest Stories
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

March 23, 2015

UF/IFAS Appoints Joseph Albano As Director Of Mid-Flori…

The University of Florida's Institute of Food and Agricultural Sciences (UF/IFAS) has a new directors for its Mid-Florida Research and Education Center (REC) on Apopka, Fla. The role has been filled by Joseph Albano, a research horticulturist from the U.S. Department of Agriculture with more than 25 years of experience.

Read More
Plantbid website screenshot

March 20, 2015

Plantbid Brings Open Sourcing To Greenhouse Growers

Plantbid bridges the gap between buyers and sellers for sales and marketing networking on their own terms. The web-based, plant-sourcing platform aims to save growers time and make the business of buying and selling plants more efficient.

Read More
National Floriculture Forum 2015 029

March 18, 2015

2015 National Floriculture Forum Focuses On Marketing I…

The 2015 National Floriculture Forum, held March 6 to 7 in Minneapolis, Minn., zeroed in on the topic of marketing in horticulture and included visits to Gertens Greenhouses and Garden Center, Bailey Nurseries, Bachman’s Floral, Home and Garden and Tangletown Gardens. The annual meeting allows greenhouse and floriculture faculty, graduate students and industry partners to meet and share updates on current research, issues and initiatives.

Read More

March 18, 2015

H-2B Situation Goes From Bad To Even Worse

On March 5, the Department of Labor (DOL) announced that it will no longer accept or process H-2B labor certifications or requests for H-2B prevailing wage determinations in light of a March 4 decision. Shortly after the DOL announcement, the Department of Homeland Security's (DHS) Citizenship and Immigration Services followed suit, announcing it will at least temporarily cease approving visa petitions. These announcements essentially shut down the H-2B program for any company that has not completed the DHS H-2B visa petitioning process.

Read More
SAF CAD

March 18, 2015

Growers Ask For Immigration And Healthcare Reform Durin…

Nearly 90 growers, retailers, suppliers and wholesales attended the Society of American Florists' (SAF) 2015 Congressional Action Days March 9-10. The delegation, representing 18 states, arrived on Capitol Hill at a time when two major industry issues - immigration and healthcare reform - are especially prominent in national headlines.

Read More

March 17, 2015

Pike Nurseries Implements Employee Stock Ownership Plan

Independent garden retailer Pike Nurseries has announced it will become an employee-owned company. Pike Nurseries management has combined with its sister corporation in California, Armstrong Garden Centers, to operate under an established Employee Stock Ownership Plan (ESOP).

Read More
Fairchild Dairy Teaching and Research Center

March 11, 2015

University Of New Hampshire Research Farms Ranked Among…

The University of New Hampshire's university farms were recognized as being among the top in the country by Best College Reviews, which published a ranking of the 20 best university farms in America. The university, which was ranked No. 20, was noted for having an academically centered farming operation. UNH has four horticulture, agronomy, and dairy farms, as well as greenhouses, which are centered on teaching, research and outreach.

Read More
Crop Protection Of The Future

March 11, 2015

Help Us Find Out How Crop Protection Has Changed Among …

Is your environmentally controlled greenhouse production area 500,000 square feet or larger? If so, we want to hear from you. Please take our Top 100 Growers survey to help us get an accurate picture of our industry from the perspective of our largest operations.

Read More
GrowIt! App Wins Gold At Design100 2014 US Mobile & App Design Awards

March 10, 2015

GrowIt! Mobile App Now Available For Android

The mobile app GrowIt! Garden Socially can now be used by gardeners with Android-based smartphones. Now available on the Google Play Market, GrowIt! helps users find plants to fit their lifestyle and connect them with other local gardeners.

Read More
Nexus Corporation's Cheryl Longtin Encourages Women To Seek Volunteer Leadership Opportunities

March 4, 2015

Nexus Corporation’s Cheryl Longtin Encourages Wom…

When Cheryl Longtin came to the horticulture business in 1994, she applied her experience in the automotive industry to promote the adoption of more technology in greenhouse production. Longtin says horticulture, with its rich family tradition, has long promoted women in the industry compared to other industries, but women in horticulture must continue to seek out opportunities to provide volunteer leadership in organizations that shape the future of the business.

Read More

March 4, 2015

Second Annual GreenhouseConnect Will Bring Growers and …

Following a successful inaugural event in Tampa last fall, Greenhouse Grower has announced the dates of its second annual GreenhouseConnect: October 26-29, 2015. Representatives of an expected two dozen leading greenhouse operations from across the U.S. will join senior-level suppliers at Rancho Bernardo Inn in San Diego for several days of one-on-one strategic meetings, a growers-only roundtable, informational sessions and a variety of networking events.

Read More
cultivate'15 logo

March 4, 2015

Cultivate’15: AmericanHort Announces What’s…

In an industry that has seen major changes occurring at a fast pace, many industry professionals leave Cultivate with their heads spinning and no clear idea of how to regroup and strategize. Cultivate’15 is “Changing the Game.” As this year’s focus, Changing the Game will call your attention to the ways in which our industry has changed and your opportunities to compete successfully.

Read More

March 4, 2015

Maryland Green Industry Associations Unite

The Maryland Nursery and Landscape Association recently announced that it is expanding its reach to include the greenhouse industry, meaning it has become The Maryland Nursery, Landscape and Greenhouse Association (MNLGA). The change comes as a result of the planned dissolution of the former Maryland Greenhouse Growers Association and the invitation for those members to join the existing and renamed association.

Read More
american-hort-logo

March 4, 2015

H-2B Cap Hit, Adding to Visa Program Woes

The H-2B visa cap for the first half of fiscal 2015 was hit late in January. As a result, some growers may not have access to the H-2B workers they need during the months ahead. The visa cap and resulting labor shortages will have impacts throughout the horticulture industry.

Read More

March 2, 2015

Avoid Surprises On The Delivery Dock

A call in advance about problems with a plant shipment to a retailer you supply goes a long way toward customer satisfaction.

Read More