Economic Predictions and Direction for 2018 – Brandsource Magazine
Back in 2012, when I began my speaking career at the BrandSource Summit in Orlando, I predicted from the stage on a Sunday afternoon, that America was entering a ten year period of growth and prosperity and the next cycle would produce positive change for the home goods industry. Fortunately for me, since that speech in 2012 most of my forward looking insights actually transpired. So it is with a sigh of relief that I now take a moment to look out over 2018.
You all know that retail activity has had an abundant amount of good news in 2017 but the year started out with warnings that America was facing a historic number of store closings due to the shift to online shopping. Someone even called it a “retail apocalypse,” a term better suited to the decline of Sears. The record number of store closings did put fear in the hearts of anyone who owned a free standing store and it was a real threat but the markets moved, last year, in favor of our BrandSource members. Let me explain why.
All the attention this year has been on the stock market hitting all time records and the fact that the Dow has risen 18,000 points since March of 2009 but I want to focus on the compelling story in the housing industry during 2017. Your business is growing in sync with a consistent rise in home building and I think it is worth a look at what will happen this year 2018.
In the past nine years, all the home equity that was lost in the 2008 real estate down turn has been returned to American families. In fact, America’s housing prices increased by 6.5% in 2017 that is a whopping $2 trillion dollars in home equity, according to Zillow. This is a signal that consumers will increase spending on home remodeling which includes products you all sell like furniture, mattresses, electronics and appliances.
The confidence index (HMI) among the nation’s homebuilders ended the year at 74. That is the highest level since 1999, the builders are bullish on 2018 and beyond. Spending in this sector is up 6.6% through 10 months of 2017 and with full employment, upbeat consumers, a tight supply of houses for sale, strong GDP growth and rising rental costs, 2018 is shaping up to be another good housing year. The NAHB is projecting a 5.2% growth rate in single-family housing starts this year.
There is also research that indicates millennials will begin entering the starter home market in greater numbers as they have delayed family formations and thus home purchasing as well. The “adultolesense” phase where many of the millennials were living in the back bedrooms of their parents seems to have run its course. This is an extremely large and significant population base that has the potential to increase business in the home goods industry.
So here are the numbers, new construction in November was up 13% over the prior year, which makes it the second best month since 2006. Home prices were up 6.2% last year, giving consumer impetus to spend on home improvements. There has been great concern about the Federal Reserve raising the prime rate this year and mortgages will move up in 2018, but interest on loans will remain at historic lows.
So my bottom line on homebuilding this year is bullish, the growth we have witnessed since the crash in 2008 is sustainable over the next five years, this is good news for your business.
In other news the Conference Board in late December reported that the consumer confidence index dropped to 122.1 in December from a revised 128.6 in November. Consumer spending is closely tied to confidence and I believe consumer spending will rise 3.2% this year.
There has been good news for job seekers in America in 2017, the U3 unemployment levels have hit 4.1% which is the lowest since December 2000. In December of last year the U.S. Economy added 148,000 jobs, a number that missed economist’s expectations. Through ten months of 2017 we added an average of 174,000 jobs a month compared to a gain of 187,000 in 2016. This is good news for the retail industry as we are now at what economists call full employment. It will bolster economic growth over the next five years and is a positive sign for our economy.
I am always accused of being too optimistic, so here are two downsides to watch for in 2018.
There is a student loan crisis that is facing an entire generation of college graduates and they now take on the burden of paying down more than $1.34 trillion dollars of student debt. This will be a drag on the economy for decades and will hamper starter home sales, the purchase of home goods and will prevent many young men and women from starting families.
Subprime loans on the sale of new automobiles have grown rapidly and are now hovering around $300 billion dollars. While not in the same ball park as the subprime mortgage debacle of 2008, it has the potential to hamper economic growth if these consumers default on existing loans. This will create a drag on consumer spending and slow economic growth.
So this is my direction in 2018, it is the same trend line I have been speaking about over the past six years, moderate growth, full employment, American workers with good jobs and slowly rising wages. Back in 2012 I told the BrandSource audiences that your businesses would be entering their “golden years.” As I look back on that prediction regarding increasing revenues for Independents, additional store openings, the decline of major competitors like Sears and HH Gregg and the growing confidence of our dealers since the dark days in 2008, I am happy to see growth and prosperity now a hallmark of our industry.
Have a great 2018, your hard work and dedication to the ideals set out by the BrandSource team are paying dividends which will bring you much success in the New Year.