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...
Penn State Plant Bud

August 23, 2016

AmericanHort Is Helping Plant Importers Adjust To New Regulations

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 Education, Workshops, And A Tour

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
Cannabis In Greenhouse

July 27, 2016

The Top 5 Myths About Cannabis Production Cleared Up

There is a lot of misleading information going around about growing cannabis. Industry insider James Lowe makes sure you know the truth about cannabis production.

Read More
Latest Stories
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
Cannabis In Greenhouse

July 27, 2016

The Top 5 Myths About Cannabis Production Cleared Up

There is a lot of misleading information going around about growing cannabis. Industry insider James Lowe makes sure you know the truth about cannabis production.

Read More
Joe Bischoff

July 26, 2016

SAF Partners With Cornerstone Government Affairs To Adv…

A new partnership between the Society of American Florists (SAF) and Cornerstone Government Affairs ensures that SAF will continue its highly effective work advocating for issues that affect the floriculture industry. “SAF and Cornerstone together provide experienced voices on Capitol Hill to protect our growers’ interests,” says SAF CEO Peter Moran. “We’ll continue to move major policy priorities forward on behalf of small business and agriculture.” Cornerstone is a public affairs firm specializing in government relations, strategic consulting, and advocacy. Its team of more than 50 senior professionals includes former senior professional staff from both authorization and appropriations committees and the U.S. Department of Agriculture (USDA), as well as veterans of the horticulture industry. Agricultural and horticultural issues of primary concern to SAF members include access to labor, immigration, crop protection, international trade and other matters related to the day-to-day operations of growers. Before she retired this year, SAF lobbyist Lin […]

Read More

July 26, 2016

AFE Releases New Videos Highlighting Industry Successes

The American Floral Endowment (AFE) recently released five new videos, created to highlight floriculture successes through industry collaboration, support, and participation. “Each video shares real stories from industry members on career development through scholarships and internships, and true examples of research solutions that have shaped how the industry operates today,” says Laura Shinall, President of Syndicate Sales, Inc., and AFE Public Relations and Development Chair. “We’re excited to be able to share some great success stories in an effort to increase industry participation.” The introductory video “Heard of the American Floral Endowment?” helps educate those who aren’t currently aware of AFE’s programs, while other segmented videos (retail, wholesale, grower) share how Endowment programs complement each group and why it’s so important that everyone in the industry participates: Retail Florists Share Why They Turn to AFE New Resources for Floral Wholesalers and Suppliers AFE Helping Growers Profit Ready for a Career in Floriculture or Horticulture? […]

Read More
Briscoe White, Growers Exchange

July 6, 2016

The Grower’s Exchange Unlocks The Secret to E-Commerce

In the Internet era, Briscoe and Kenan White knew they had to adapt or die and specialize to survive. Here’s how they took The Grower’s Exchange online.

Read More
Brie Arthur

July 6, 2016

5 Can’t-Miss Events To Watch For At Farwest 2016

Whether it’s classes on biocontrols and gardening trends, or networking opportunities in and around the trade show floor, there’s plenty happening at Farwest 2016 in Portland, OR, in August.

Read More
Cannabis states 2016

July 1, 2016

Adult Use Of Cannabis On The Ballot In 2016

25 states have legalized cannabis and public opinion is increasingly positive. Here’s where things may be headed as we move toward the fall elections.

Read More
Practical Software Grower Vertical

June 18, 2016

Practical Software Solutions Increases Accessibility, E…

Practical Software will demonstrate Grower Vertical, its customizable and scalable enterprise management system for the horticulture industry, at Cultivate’16 in July.

Read More
Battlefield Farms Company shot

June 14, 2016

Battlefield Farms Is A Finalist For 2016 Operation Of T…

Battlefield Farms in Rapidan, VA, is one of three finalists for Greenhouse Grower’s 2016 Operation Of The Year award and winner of the Excellence In Innovation award for 2016.

Read More

June 7, 2016

Ball Seed Offers Full Mobile Ordering Capabilities With…

The latest update for Ball Seed’s WebTrack To Go mobile app now includes full ordering capabilities for the industry’s largest assortment of seeds and plants. App users can also complete order fulfillment via seed count or package size, find product substitutions, get personalized “contact us” information, request plant tags, and more. “Upgrading WebTrack To Go to the full suite of ordering and management tools is where we’ve always wanted to be,” says Mark Morris, Director of IT for Ball Seed. “With this new roll-out, we’re keeping up with our customers on-the-go and providing them the information and access they need –- even while away from their desks.” The Ball Seed WebTrack To Go app lets customers: Check order status and shipment tracking 24-7 Access up-to-the-minute product inventory from hundreds of suppliers Place orders by seed count, packet size, and more Find product info, culture and photos when and where they […]

Read More
Gotham Greens Atrium Style Greenhouse Chicago

May 23, 2016

What’s Good For The Environment Is Good For Business [O…

Investing in technology to become more sustainable “always goes hand in hand,” says Abe VanWingerden, co-CEO of Metrolina Greenhouses. “If it is good for the environment, it normally is good for business over the long term.” That connection was abundantly clear in the responses we received to this year’s Top 100 Growers Survey. VanWingerden points to three investments Metrolina has made as good examples of how technology can reduce an operation’s carbon footprint and pay dividends financially. Its biomass system burns locally sourced waste wood — a renewable resource; its ozone water treatment system cleans irrigation water, reducing the need for fertilizers and pesticides, and improving plant quality and precision growing; and electrostatic sprayers reduce water and chemical use, and provide more targeted chemical applications. Other Top 100 Growers have found VanWingerden’s theory to be true, as well. Costa Farms’ investment in solar energy panels on three buildings at its […]

Read More
Petunia 'Supertunia Violet Star Charm' (2015 University of Georgia Field Trials)

May 10, 2016

New Southern-Centric Ornamental Production Conference T…

The 2016 Academy of Crop Production is dedicated exclusively to sharing information on advanced ornamental crop production and business management techniques for ornamental producers.

Read More
University of Florida Online Greenhouse Training Courses

April 25, 2016

University of Florida Offering Online Training Courses …

There will be five courses offered, with the first starting on May 30. Courses are available in both English and Spanish and range from beginner level to advanced education.

Read More
Sanitation programs are essential to preventing and removing food safety concerns.

April 7, 2016

USDA Launches GroupGAP Program For Fruit And Vegetable …

The new certification program is designed to help small and mid-size growers, including greenhouse vegetable producers, comply with new food safety regulations.

Read More
Young Plants Farm North Carolina

March 15, 2016

Young’s Plant Farm Obtains MPS-A Qualification

MPS, an organization that develops and manages certification for companies in the horticulture industry, has awarded MPS-A certification to Young’s Plant Farm in North Carolina and Alabama.

Read More
Charlie Hall Feature Image

March 14, 2016

Dr. Charlie Hall Will Offer Keynote Address At Farwest …

The Texas A&M economist will discuss factors affecting short- and long-term demand driving the future of the green industry.

Read More
Seed Your Future Logo

March 8, 2016

Longwood Gardens And American Society For Horticultural…

Under the direction of co-chairs Paul B. Redman of Longwood Gardens and Anna Ball of Ball Horticultural Company, the “Seed Your Future” initiative is designed to combat declining awareness of horticulture while promoting it as a viable career choice.

Read More
[gravityform id="35" title="false" description="false"]