2013 Could Be The Turnaround Year

GROW logo

The Great Recession began more than five years ago now (December 2007). It also ended more than three and a half years ago (June 2009). Yet some 12 million Americans are still looking for a job, and millions more would say it hasn’t felt like much of a recovery at all, including folks who have seen their incomes stall or have been drowning in mortgage debt for years.

Since the start of 2010, economic growth has averaged 2.2 percent, which would be just fine in normal times but is less than stellar considering the starting point was a time of mass unemployment and general economic despair. The nation is poised to approach the fourth anniversary of economic recovery this coming June with an output gap — the difference between what the economy is capable of producing and what it is actually producing — approaching $1 trillion.  

It will take a few years of real growth, at least 3 percent, to change that dynamic, and the stars are aligning for 2013 to be the beginning of a period of above-average growth. Let’s consider the factors that have been holding things back, and why those headwinds may finally be fading.

Factors Limiting Economic Growth

Housing Starts And Sales
The biggest hindrance for the economy the last few years has been the housing sector, with sales near-historic lows for half a decade. At first, this was a necessary adjustment in order to work off the overbuilding of homes during the 2000 to 2006 housing bubble. But we are far beyond that point now due to the significant under-building of homes in recent years relative to demographic trends. Even when adjustments are made for the lower-than-normal household formation during the recession and its aftermath (i.e., college graduates opting to live in their parents’ basement instead of getting an apartment), it is still less-than-awesome growth.

One day, this mismatch of too few houses being built relative to the number of people who need a place to live will be resolved, and that day seems to be approaching. Housing starts increased 28 percent in 2012 (initial estimate). This is a solid year-over-year increase, and residential investment is now making a positive contribution to gross domestic product (GDP) growth. Even after increasing in 2012, the 780,000 housing starts this past year were the fourth lowest on an annual basis since the Census Bureau started tracking starts in 1959 (the three lowest years were 2009 through 2011). Starts averaged 1.5 million per year from 1959 through 2000, but demographics and household formation suggest starts will come close to doubling this year from the 2012 level.

Residential investment and housing starts are usually two of the best leading indicators for the economy. Nothing is foolproof as a leading indicator, but if these trends follow precedent, this suggests the economy will continue to grow over the next couple of years.

Another positive statistic worth noting is that, to date, the increase in construction jobs has not matched the increase in home-building activity. In fact, for the year ending in November, the number of residential construction jobs actually fell by 5,000. It is a bit of a conundrum as to why, but one sure thing is it can’t go on forever.

If building activity continues to rise, construction companies will need more workers, and this is low-hanging fruit for the labor market. The unemployment rate among construction and excavation workers was about 13 percent as 2012 came to a close. Putting construction workers back to work building new houses and apartment buildings for a growing population is just what this economy needs.

Decreasing Debt
Another factor constraining economic growth has been household debt. American consumers, as we have often heard in the media, have been weighed down by the debts they incurred during the boom years, including credit card bills, student loans and burdensome home mortgages.

The good news now is that, through a combination of their own efforts to save money, low-interest rate policies from the Federal Reserve and the attrition from defaults and foreclosures, Americans seem to be further along their deleveraging path. The ratio of household debt to GDP has fallen from a peak of 98 percent at the start of 2009 to 81 percent in the third quarter last year, which is about the level it was in 2003 — still not good but heading in the right direction.

Because of low interest rates, the cost of servicing debt is down even more. The ratio of household debt servicing costs to after-tax personal income was down last year to nearly its lowest levels on record. The Fed’s policy actions have brought down rates on credit cards and auto loans, and more people have been able to refinance their mortgages as home prices rise. Americans’ household balance sheets are looking as good as they have in a decade, which means that as 2013 begins, debt overhang no longer looks like the dark cloud over the economy it once was.

The Government’s Contribution
Among the persistent drags on the economy throughout this weak recovery are state and local government budget woes that have precipitated slashed spending and job layoffs. These initiatives have counteracted federal stimulus efforts with fiscal anti-stimulus measures of their own.

From 2000 to 2008, state and local governments added an average of 226,000 jobs per year. Since 2008, as states struggled to balance their shrinking budgets hampered by lower tax revenues and higher spending on social welfare needs, the sector has cut an average of 154,000 jobs per year. However, they may finally be through the toughest part of that adjustment process. With tax revenues climbing and major budget-cutting already completed, state and local government employment seems to have bottomed out and has been on a gentle upswing. Don’t look for this sector to be a major driver of hiring, but by ceasing to be a negative, it could fuel the potential for better growth in 2013. Barring any foolish post-fiscal cliff policy gaffes by our national government, we will likely be looking at a decent year.

Topics:

Leave a Reply

More From Grow Initiative...
HGTV_2015CAST

April 24, 2016

9 Business Predictions Smart Brands Should Pay Attention To

Andreas von der Heydt, Director of Kindle at Amazon, recently predicted what smart businesses will do in 2016 to strengthen their brands and promote their products.

Read More
Lin Schmale 1996

April 23, 2016

SAF’s Lin Schmale Offers Lessons From An Industry Lobbyist

Schmale represented the floriculture industry on Capitol Hill for more than 20 years. The advocate has recently retired, and shares some valuable insights from her career.

Read More
An Edible Evening At Stephen F Austin

April 11, 2016

How The Greenhouse Industry Can Propagate Gardeners The Same Way It Propagates Plants

Jared Barnes at Stephen F. Austin University says we are the experts at propagating plants. That’s knowledge we can put to good use to envision how to attract new gardeners and future horticulturists to the industry.

Read More
Latest Stories
HGTV_2015CAST

April 24, 2016

9 Business Predictions Smart Brands Should Pay Attentio…

Andreas von der Heydt, Director of Kindle at Amazon, recently predicted what smart businesses will do in 2016 to strengthen their brands and promote their products.

Read More
Lin Schmale 1996

April 23, 2016

SAF’s Lin Schmale Offers Lessons From An Industry…

Schmale represented the floriculture industry on Capitol Hill for more than 20 years. The advocate has recently retired, and shares some valuable insights from her career.

Read More
An Edible Evening At Stephen F Austin

April 11, 2016

How The Greenhouse Industry Can Propagate Gardeners The…

Jared Barnes at Stephen F. Austin University says we are the experts at propagating plants. That’s knowledge we can put to good use to envision how to attract new gardeners and future horticulturists to the industry.

Read More
Congressional Action Days 2016

April 5, 2016

Floral Industry Leaders Make Progress And (In Some Case…

Nearly 90 floral industry members gathered in the nation’s capital in March to meet with lawmakers in the annual event coordinated by the Society of American Florists.

Read More
Student Video Horticulture Education

April 2, 2016

Use Videos Featuring Your Millennial Employees To Recru…

Your Millennial employees may be the best spokespeople you have for your business. Why not encourage them to make a 30-second video talking about why they got into horticulture?

Read More
One symptom of Botrytis blight is gray, fuzzy sporulation on foliage and flowers, similar to that shown on the flower of this hibiscus

March 25, 2016

American Floral Endowment Will Fund Research Projects A…

AFE’s primary research funding priorities cover everything from pest control to production management. Funding applications are due June 1.

Read More
kendall farms

March 12, 2016

3 Grower Brands That Give Customers What They Want

With product information, reviews, and price comparisons at their fingertips, Millennials are turning to brands that can offer maximum convenience at the lowest cost.

Read More
NatureFresh Internship Program

March 8, 2016

NatureFresh Develops Innovative, Interactive Program Fo…

Through WeAreTheGrower.com, students can get hands-on experience connecting with consumers at community events, and sharing their experiences via social media.

Read More
Kristine Lonergan, Garden State Growers

March 7, 2016

How To Make Your Brand Connect With Millennials

Marketing to tech-savvy Millennials means paying attention to their shopping habits and motivations to build relationships that help them connect with gardening.

Read More
Uber provides value to consumers by making their lives better

March 6, 2016

How To Market To Both Millennials And Boomers

While Millennials have become the all-important generation among many marketers, there are some important parallels that can be drawn between Millennials and Boomers.

Read More
This row of tomatoes with large fruit load is part of an on-going project with DeRuiter Seed Co

February 24, 2016

University Of Arizona’s Greenhouse Crop Production &…

The annual event features a comprehensive educational program as well as a hands-on workshop. Registration is now open.

Read More
Carol Miller

February 16, 2016

Why America Needs Plant Evangelists

If we want to have more people buying plants, we can’t sit back and hope for change. We need to share our passion with individual communities and spark a love for plants.

Read More

February 2, 2016

19 Strategies To Strengthen The Horticulture Industry

In Greenhouse Grower’s annual State Of The Industry Survey, we asked how your operation is living the GROW initiative’s five pillars: cultivate new customers, demand quality, drive consumer success, invest in the industry, and sharpen business management. Here is what you had to say.

Read More
John Daley Featured

January 25, 2016

How To Retain Motivated Young Growers At Your Greenhous…

Wholesale grower John R. Daley says engaging young growers and making them a viable part of your operation is the best way to ensure you keep young talent for the long term.

Read More
Janeen Wright

January 18, 2016

Five Thought-Provoking Ideas From GROW Summit 2015

Here are five ideas from Greenhouse Grower’s 2015 GROW Summit ranging from big-picture ideas to smaller initiatives that can help move the industry forward.

Read More
SAF CAD

January 18, 2016

Sign Up Now To Attend SAF Congressional Action Days In …

Congressional Action Days is a great chance for Society of American Florists members to meet their state’s lawmakers and discuss the most critical issues they are facing.

Read More
Dr Allan Armitage

January 15, 2016

Allan Armitage: Why The Deck Has Becomes The New Hot Sp…

Armitage says decks and small spaces allow younger generations to enjoy all the benefits of a garden without the work.

Read More
Laura Drotleff

January 6, 2016

Most Popular New Year’s Resolution For 2016 Favor…

It’s splashed all over social media: 2016 is going to be a great year! And what’s fueling that sentiment? It’s an overwhelming need for Americans to enjoy life more. In fact, we’re so passionate about this that it’s the most popular New Year’s Resolution for 2016, followed by living a healthier lifestyle. Here are the top 6 resolutions for 2016, as reported by Time.com, according to a Google Consumer Survey by GoBankingRates. Enjoy life to the fullest Live a healthier lifestyle Lose weight Save more, spend less Spend more time with family and friends Pay down debt Among different age groups, Millennials (18 to 34) are setting more resolutions than any other group, and they’re the most concerned with spending more time with loved ones, and the most concerned with spending less and saving money. Younger Gen Xers (35 to 44) are focused more on living healthier in 2016, while […]

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