The years leading up to the Great Recession were good ones. The green industry showed signs of strength and stability, much of it fueled by a booming housing market. Overall, economic contributions in 2007 were estimated to be $175.26 billion.
Then came the crash. Greenhouse and nursery growers who experienced remarkable growth in sales and profits for most of the decade prior to the recession now face painfully slow-growing demand, with prospective buyers willing to purchase product only on a just-in-time basis. Maintaining enough liquidity to handle daily operations still remains a key industry challenge. The decline in industry sales, accompanied by increased expenses to maintain greenhouse and nursery products, have combined to reduce firm-level cash reserves and forced many growers to attempt to source additional credit from lenders or suppliers.
2015 Best Year Since The Great Recession
While some economists are quick to point out that the U.S. economy is overdue for a recession this year, most economic indicators point to modest growth. In short, there is nothing holding the green industry back from having a great 2016. We’re going into this spring season better off than we have been. Even though last year started out with a negative gross domestic product (GDP), 2015 averaged out to be the best year since recovery from the Great Recession began. And while there is still a 1.9% gap between the U.S. potential and the actual GDP, it’s shrinking. That’s based in large part on the personal spending of consumers. In the fourth quarter, those expenditures were 65% of the GDP.
Gross private domestic investment, such as new inventory or equipment, has been on an upswing since the recovery began, which is a good sign of growing business prospects. When it comes to income, more and more people are joining or rejoining the workforce, regardless of how long they’ve been out of work, dropping the unemployment rate to 5.5%.
Americans are spending more today than they did prior to the recession. And beyond the increased consumer confidence, which means more spending, low gas prices should mean huge savings for contractors in terms of fuel and supply costs. The housing market is increasing, but it still hasn’t returned to pre-recession levels. That could change this coming year as excess stock continues to be taken off the market.
Overall, the green industry is doing better than it was, but it’s still a bit overleveraged. Banks are starting to loosen up credit, particularly in the housing sector, and low fuel prices will mean lower distribution costs. That, along with increased consumer confidence and lower unemployment rates, puts the industry in the best shape it’s been in for years. There are a lot of forces, but there’s nothing that’s going to rear its ugly head and cause us to really shrink back and see our economy suffer.
Industry Seeing Growth In Both Wholesale And Retail
The most recent National Green Industry Survey, which is conducted every five years, gathered annual information from all 50 states and represented the sixth such effort by the Green Industry Research Consortium, a multistate research committee made up of horticulturists and agricultural economists from selected land-grant universities. The results from this survey are illuminating, given that many of the structural changes in the industry since the Great Recession recovery are more fully identified.
Economic contributions of the green industry in the U.S. were estimated for 2013 using information on industry output, value added, employment, and domestic/international exports, retail sector lawn and garden product sales, and economic multipliers from IMPLAN (impact analysis planning) regional economic models for each state. Direct industry output for all sectors was estimated at $136.44 billion, and total output contributions, including indirect and induced regional economic multiplier effects of export sales, were $196.07 billion.
The total value-added contribution to gross domestic product (GDP) was $120.71 billion, including labor income contributions of $82.47 billion, other property income contributions of $28.91 billion, and business taxes paid to local, state, and federal governments of $9.30 billion. The industry had direct employment of 1,599,662 full-time and part-time jobs, and total employment contributions of 2,035,636 jobs in the broader economy.
The largest individual industry sectors in terms of employment and GDP contributions were landscaping and horticultural services (1,105,526 jobs, $54.70 billion), greenhouse, nursery, and floriculture production (240,809 jobs, $20.36 billion), and lawn and garden equipment and supplies stores (217,798 jobs, $12.87 billion).
Green industry contributions represented 0.72% of U.S. GDP and 1.11% of the total workforce employment. Since 2007-2008, contributions in 2013 increased by 4.4% for employment and 2.7% for GDP in inflation-adjusted terms. Growth in the industry was highest for wholesale and retail trade, while production and manufacturing declined.
Outlook For 2016
The current health of the economy is extremely mixed, with most of the leading indicators trending positive, but others improving very slowly. Mixed performance in the economy, coupled with extreme weather conditions across much of the country, make for a terribly challenging and uncertain environment, as we saw this past spring. I remain optimistic about the recovery, however, given the industry’s performance once spring thaws ensued.
I still have reason to believe that the most successful greenhouse and nursery firms in 2016 will be those that are well-positioned with their customers in the marketplace, not overleveraged, and clearly articulating their value proposition. We will likely see continued structural changes across the industry supply chain as we morph into the more compact and efficient industry of the next decade. This will not only mean further consolidation in the industry, but deeper, more strategic relationships among those left from the transition. The green industry in the next decade will not look the same as the last decade.
It is more critical than ever to convey value and relevancy in an authentic manner to end consumers, but the factors that will guarantee success in the future are going to change. Better brand management, more detailed SKU movement and replenishment analysis, greater efficiency in distribution and logistics, closer integration of genetic innovations and supply levels with consumer demand, and the assimilation of innovative marketing technologies (social media and otherwise) are the new key success factors of the future.
Notice that growing a quality plant isn’t listed; that’s because it’s a given. Growers will be required to produce quality to even play in the game. Growers who master these key success factors will be postured better for the potential economic shocks if they do occur and lay the groundwork for solid performance during any future economic downturns.
Demand For Products Will Grow As Housing Market Recovers
The data above confirms that the downturn in housing and its less-than-stellar recovery has had a profound impact on green industry product sales in recent years. Bedding plant growers have had an easier market in which to compete, as households have tended to downsize their plant purchases in an attempt to maximize their purchasing power; for example, smaller but more numerous plants at lower price points.
The only plant categories that experienced increases in the number of households buying them during this time were in the edibles category. However, given the housing market trends mentioned earlier, it is likely that green industry products and services will be facing an increase in demand in the next few years.