Breaking Down Our Economy

As I am writing this, Mother’s Day weekend has come to a close and we are in the midst of a strong lawn and gardening spring season. Indications across the country have pointed to robust sales, albeit some regions have experienced stronger sales than others. I would anticipate with the weather patterns evidenced this year, summer may even surprise us. Of course, fall is our next biggest time of the year and as long as weather cooperates, the other major influencing factor is the economy.

The good news is the economy continues to show signs of recovery. Real GDP grew at a 3.2 percent annual rate in the first quarter this year, as strong growth in consumer spending and inventory rebuilding contributed to the bulk of the improvement during the quarter. Business investment was supported by equipment and software spending, but investment in structures continues to lag. Government outlays were a mixed picture, with federal expenditures expanding but not enough to balance the decline in state and local spending. International trade contributed positively with exports up 5.8 percent at an annual rate. Inflation remained relatively tame during the quarter, with the GDP deflator climbing just 1.4 percent on a year-over-year basis.

The strong first quarter GDP numbers reflect rebounding production. During the recession, manufacturers cut output much more than demand faltered (as they typically do). The net result was a protracted decline in inventories. Output has come back strong more recently and the early data for the second quarter are encouraging. Regional manufacturing surveys from the Federal Reserve Bank all report sharp increases in activity during the last part of spring.

While manufacturing activity and overall GDP have bounced back solidly in recent months, the sustainability of recent gains remains in question. Ultimately, once inventories are brought back into line with historical norms, production will have to move back in line with the more modest gains in final demand. This means that some of the more upbeat numbers on production may roll over in the next few months, as increases in production begin to taper off. While the second quarter numbers have not been released at the time I am writing this column, I would expect real GDP to continue expanding at around a 3 percent annual rate. Growth is expected to cool off a bit during the second half of the year, however, as some of the boost from various stimulus programs diminishes.

Housing Market’s Effect

Housing is one area where we will soon see what happens when the stimulus ends. The advantage of tax credits for first-time home buyers and some trade-up buyers ended in May. As a result, new home sales, which surged 27 percent in March, should either add or hold on to that gain in April, before sliding back a bit in May and June. Existing home sales, which are booked at closing, will likely ramp up over the next few months and then slide back a bit over the summer.

The bottom line is we still have too many housing units. Population growth would normally solve this problem, but the recession has triggered a lower ratio of households to people. In other words, people elected to live together more often. Couples delayed divorce. Adult children elected to stay at home and many came back home during the recession. In addition to these factors, a number of immigrant workers have returned to their home countries, preferring to be unemployed at home rather than unemployed in the United States.

With the current housing oversupply, there isn’t much reason to build. Oh, there are certain neighborhoods where certain types of housing at certain price points are still in demand. New construction is not falling to absolute zero. But there is little hope for a healthy housing market until the oversupply goes away. What will lead to the end of housing oversupply? First, job growth will get those kids out of their parents’ homes. Second, general population growth will help, including some foreign workers returning to this country. But don’t look at your 2010 calendar to find the date that the oversupply will be worked off – you need a calendar that runs into 2011 at least.

The end of the first-time homebuyers’ tax credit raises some questions as to what will happen to home prices. The latest S&P/Case-Shiller home price data were a little less upbeat. The 10-city composite price index rose less than 0.1 percent, while the 20-city composite index fell 0.1 percent. Home prices are likely being supported by various government and private sector programs to reduce foreclosures. Most real estate gurus expect home prices to decline later this year and ultimately expect the S&P/Case-Shiller 10-city composite index, which is currently down 30 percent from its peak level, to decline another 6 to 8 percent. The roller coaster continues.

More Work Ahead

Looking beyond the recovery, restoring the financial sector to full health and addressing the gaps in regulation highlighted by the crisis will be essential for stable medium-term growth. A consensus is building around reforms that would strengthen supervision and regulation, including through an expanded perimeter, improving the resolution mechanism for systemically important non-bank financial institutions to provide options other than bankruptcy and bailout; and shoring up the infrastructure for financial markets.

Reforms would also provide an opportunity to address the “too-big-to-fail” problem by creating incentives to reduce size and complexity. This would help streamline the U.S. regulatory structure, avoid gaps and inconsistencies and support renewed (but safer) securitization activity. In turn, a more sustainable foundation for U.S. growth will facilitate the rebalancing of global demand. This is a complicated issue that extends well beyond my pay grade, but it will be important for all of us to stay informed on the issue.

The key to putting economic growth of our country and our industry on a more sustainable economic footing is repairing both private and public balance sheets – and, in particular, savings. Consumers have shown remarkable resilience during the recovery to date, but big-ticket purchases (landscape and otherwise) remain secondary in their minds. The task still remains ahead of us to convince them flowers are necessities in their lives rather than mere luxuries. 

Leave a Reply

More From Finance/Operations...

April 11, 2017

Jerry Halamuda of Color Spot Nurseries Retires

The co-founder of Color Spot Nurseries has retired, effective immediately, and has named a replacement.

Read More
Socius Webinar

March 30, 2017

Webinar to Offer Tips on Properly Managing Your Business for Growth

“How to Survive and Thrive: New Revenue Building Tools for Growers,” presented by Socius, takes place on April 6.

Read More

March 21, 2017

How Greenhouse Vegetable Growers Can Prepare for a Product Recall

The United Fresh Produce Association is holding a Recall Ready Workshop in April that is designed to help growers properly manage a recall, from liability to communications.

Read More
Latest Stories

April 11, 2017

Jerry Halamuda of Color Spot Nurseries Retires

The co-founder of Color Spot Nurseries has retired, effective immediately, and has named a replacement.

Read More
Socius Webinar

March 30, 2017

Webinar to Offer Tips on Properly Managing Your Busines…

“How to Survive and Thrive: New Revenue Building Tools for Growers,” presented by Socius, takes place on April 6.

Read More

March 21, 2017

How Greenhouse Vegetable Growers Can Prepare for a Prod…

The United Fresh Produce Association is holding a Recall Ready Workshop in April that is designed to help growers properly manage a recall, from liability to communications.

Read More

March 14, 2017

Expanded Customer Footprint, E-Commerce, Succession Key…

Costa Farms' acquisition of indoor foliage producer Delray Plants rocked the industry, but the story behind Delray Plants' sale is the same as for many growers struggling with succession planning. For Costa Farms, the strategic purchase expands its customer footprint and also fast tracks its foray into e-commerce.

Read More

March 10, 2017

Costa Farms Expands With Purchase of Indoor Houseplant …

Costa Farms annnounced March 10 that it has acquired Delray Plants, one of the leaders in the indoor houseplant industry. The two operations are committed to the same values, principles, and goals to grow the industry, and will fit well together to accomplish this, say Randy Gilde, CEO of Delray Plants, and Joche Smith, CEO of Costa Farms.

Read More
Ken and Deena Altman

March 7, 2017

Altman Plants in Escrow to Purchase EuroAmerican Propag…

Ken Altman, a co-owner of Altman Plants based in Vista, CA, has confirmed that the operation is currently in escrow to purchase EuroAmerican Propagators, the Bonsall, CA-based young plant and finished plant grower that filed Chapter 7 Bankruptcy on Jan. 23, 2017. Ken and Deena Altman are co-owners of Altman Plants and The Plug Connection, along with their son Matthew, who has recently bought into the family business. The 55 acres of land and all of the facilities on it, which were previously owned by Jerry Church, a partner in EuroAmerican Propagators, are part of the purchase agreement currently in escrow, Altman says. However, it would not be absorbed by Altman Plants, which in 2016 was number 3 on Greenhouse Grower’s Top 100 Growers list with more than 11 million square feet of environmentally controlled greenhouse production, 62 acres of shade production, and 400 acres of outdoor field production. Altman Plants’ property […]

Read More
EuroAmerican Propagators Greenhouses

February 14, 2017

Suppliers Comment on Plant Genetics’ Fate After EuroAme…

Since the operation’s bankruptcy filing on January 23, 2017, suppliers associated with EuroAmerican Propagators have updated Greenhouse Grower on what the operation’s bankruptcy means for them – and how it will impact grower customers.

Read More
Stephanie Whitehouse

January 17, 2017

Stephanie Whitehouse Takes Her Passion for Plants to Di…

Stephanie Whitehouse, who has spent the last seven years as the Sales and Marketing Director for Peace Tree Farm in Kintnersville, PA, recently joined Dickman Farms Greenhouse and Garden Center in Auburn, NY, as the company’s new Retail General Manager.

Read More
Laura Drotleff

December 6, 2016

Are You Driving Young Growers Away? [Opinion]

In a time when the industry is facing a critical shortage of both labor and skilled, educated growers, it's important that grower operations don't unwittingly turn candidates off to a career at their business or in the industry in general. Take a closer look at your hiring practices to ensure you are being inclusive and not breaking any laws.

Read More
Trays move on an overhead conveyor to the end of the production line, where workers carefully pack the cleaned, sized, graded, counted and sorted Calla tubers

November 29, 2016

Texas Judge Halts Overtime Rule; Here’s What It Means F…

According to Craig Regelbrugge at AmericanHort, the injunction against the overtime rule is welcome news for horticulture.

Read More
Craig Regelbrugge, senior vice president of AmericanHort - Feature image

October 25, 2016

Contribute To HRI To Help Honor Industry Advocate Craig…

In honor of Craig Regelbrugge's extraordinary contributions to the horticultural industry, AmericanHort and the Horticultural Research Initiative created a special HRI endowment fund in his name: "The Craig Regelbrugge - Advocates for Horticulture Fund."

Read More
Lucas Greenhouses Shipping

October 6, 2016

Greenhouse Shipping Costs Down, But Concerns Remain

Lower gas prices have led to lower shipping costs for some growers, but many continue to seek out ways to become more efficient.

Read More
Pansy ‘Cool Wave Blue Skies’ (Wave)

September 20, 2016

PanAmerican Seed Settles Alleged Trade Sanction Violati…

PanAmerican Seed, a division of Ball Horticultural Co., has been charged with violating trade sanctions to Iran over a number of years. According to a release from the U.S. Treasury department, PanAmerican Seed made 48 indirect sales of seeds to two Iranian distributors. The company shipped the seed to consignees based in countries in Europe and the Middle East. PanAmerican Seed’s customers then arranged for the re-exportation of the seeds to Iran. The release states that the Office of Foreign Assets Control (OFAC) determined PanAmerican Seed did not voluntarily self-disclose the alleged violations to OFAC, constituting an egregious case. “We believe that the settlement was extreme; however the alternative was to litigate with the U.S. government, which would take months, if not years,” says Todd Billings, Chief Financial Officer for Ball Horticultural Co. When asked what Ball Horticultural Co. has done to ensure that violations to trade sanctions do not […]

Read More
young-plants

September 20, 2016

The Top Young Plant Growers, And Four Critical Challeng…

In Greenhouse Grower’s 2016 Top Young Plant Growers Survey, growers discuss the latest challenges and opportunities in fulfillment, shipping, labor, and crop protection.

Read More
Cavicchio Greenhouses

September 6, 2016

Cavicchio Greenhouses Wins Inaugural Sustainability Awa…

The Sudbury, MA, growing operation sustains more than 250 acres of annuals, perennials, and nursery stock, with a number of practices to mitigate its impact on the environment.

Read More
Charlie Hall Feature Image

September 6, 2016

10 Insights From Charlie Hall’s Green Industry Economic…

With the uncertain current economic climate, Texas A&M economist Charlie Hall says now may be the perfect time to invest — as long as you do it smartly.

Read More
Penn State Plant Bud

August 23, 2016

AmericanHort Is Helping Plant Importers Adjust To New R…

A report from Craig Regelbrugge at AmericanHort says the government is implementing a streamlined system for imports, in which all required data will be submitted electronically through a single window.

Read More
Plug Connection Assortment

August 9, 2016

AmericanHort’s Plug And Cutting Conference Will Feature…

This year’s conference, which takes place Sept. 19-21 in Carlsbad, CA, features discussions on water, pest and disease control, and production inputs, as well as a biocontrols workshop and tour of local cuttings facilities.

Read More