Forecast for 2010: A Forced March Opportunity

U.S. stocks rallied in November, sending benchmark indexes to 13-month highs. Commodities gained as retail sales rebounded and Asian government leaders pledged to maintain economic stimulus spending. The dollar fell to a 15-month low and Treasury two-year yields touched the lowest level since January.

(Please click on any graph below to see a larger version.)

Exxon Mobil Corp. led gains in 39 of 40 energy producers in the S&P 500 as the price of oil climbed the most in six weeks. Retail sales grew 1.4 percent in October after slumping the most in nine months in September. Loan defaults decreased for a sixth straight month.

The S&P 500 surged 1.5 percent to 1,109.3 on Nov. 16, while the Nasdaq composite index went up 10.55 points, or 0.5 percent, at 2,178.43. The Dow Jones Industrial Average added 136.49 points, or 1.3 percent, to 10,406.96. Both reached the highest levels since Oct. 2, 2008.

Oil prices have risen steadily this year. A barrel of crude costs just over $79, more than double its price at the end of 2008. This year’s runup pales in comparison to the one that peaked last summer above $145 a barrel. Even so, some researchers warn we could once again be approaching the point at which rising energy costs will squeeze consumers.

Financial
Small U.S. firms face credit squeeze as crisis drags. Small companies create more than half of America's jobs. However, entrepreneurs who drive this part of the economy continue to complain that access to credit two years into the recession remains scarce.

Small business owners say banks remain extremely wary of risk and a world away from the carefree lending that inflated an epic boom in housing values. Those values went bust and pushed America into its worst economic downturn in decades.

Housing
Housing starts rose a modest 0.5 percent in September to a seasonally adjusted annual rate of 590,000, up from 587,000 in August. The rise was powered by strong single-family starts, which rose 3.9 percent from 482,000 to 501,000.

The increase in single-family starts reflects the continued increase in the share of starts built for the owner. In more normal periods, about 20 percent to 25 percent of all single-family starts are built on the owner’s land or built by the owner as the general contractor. That percentage declined as speculative sales rose in the mid-2000s, but it has since grown beyond historic levels as building for-sale dropped off.

Builders can finance their construction through home buyers who have been drawn into the market by bargains and low interest rates. In the most recent Census report, 30 percent of the starts fell into this category.

Meanwhile, multifamily housing starts fell from 105,000 in August to 89,000 in September at a seasonally adjusted annual rate. Notoriously volatile when measured on a monthly basis, multifamily production averaged 94,000 units in the third quarter, down from 115,000 in the second quarter and 169,000 in the first.

Home construction bad on paper and in reality applications for home building permits, a key gauge of future construction, fell in September by the largest amount in five months — a discouraging sign for the housing industry. A rebound in housing is needed to support a broader economic recovery.

Representatives for the industry told a congressional panel that the $8,000 tax credit for first-time buyers needs to be extended and expanded to ensure the housing sector will emerge from the recession.

But the Obama administration, facing soaring budget deficits, has not decided whether to support any extension. Some private economists played down the impact of such a move, arguing that most interested buyers already had taken advantage of the tax break.

Construction of homes and apartments rose 0.5 percent in September to a seasonally adjusted annual rate of 590,000 units. That was a weaker showing than the 610,000 economists had expected.

The applications for building permits fell 1.2 percent, the second setback in the past three months and the biggest decline since a 2.5 percent drop in April. It likely means construction will weaken a bit in coming months, partly because builders had accelerated projects to complete them before the tax credit expired on Nov. 30.

Construction of single-family homes rose 3.9 percent to an annual rate of 501,000 units, reversing a 4.7 percent drop in August. Multifamily construction, a much smaller and more volatile segment, posted a 15.2 percent drop following a 20.7 percent rise in August.

Housing continues to struggle as existing home sales fell in August, for the first time since March — dropping from 5.2 million in July to 5.1 million, at a seasonally adjusted annual rate. However, the August sales rate was an improvement over the August 2008 sales rate of 4.9 million.

Most states felt the housing crunch of the past two years. During that time private house units authorized by state decreased between 50 and 100 percent. Texas still leads the nation in authorizations, while California will have less than a third of its authorizations for 2009 than it had in 2007. The housing sector will slowly recover, leading the way to an overall economic recovery for the entire nation.

New home sales posted their fifth monthly increase in August, though just barely, rising to 429,000 for the month, at a seasonally adjusted annual rate up from 426,000 in July. That, however, was below the August 2008 sales rate of 444,000.

At this point, requirements for making a simple home purchase and lining up a mortgage precludes anyone who is not already in the sales process from utilizing the first-time home buyer tax credit.

In July, 17 of the 20 cities in the 20-city index recorded an increase in house prices. That is up from eight cities in May and 16 cities in June. The 20-city index is now at the same level it was in mid-2003, before the dramatic run-up in house prices.

However, considering that the first-time home buyer tax credit has temporarily generated demand, it is a bit premature to declare that house prices have hit bottom. Increasing buyer demand, extending and expanding the home buyer credit and controlling future foreclosures will help determine if the process of stabilization in house prices will continue.

Remodeling
New home inventories continue to improve, but the demand remains weak. For 29 consecutive months, home builders have been doing what they need to do in the face of weak demand by reducing their inventory of unsold homes.

New home inventories peaked at 572,000 in July 2006. In September 2009, they were down by more than half to 251,000, the lowest level since November 1982.

There was a 7.5 months’ supply of unsold homes in September, down from an all-time of 12.4 months in January of this year. The inventory has declined by almost 100,000 additional units from the 340,000 new homes on the market in the first month of the year, which in healthier times would have been a near-normal level.

The months’ supply of unsold homes was running at a somewhat elevated level in September when the inventory was below normal levels. This clearly indicates that the major problem facing the housing market is no longer oversupply, but weak demand.

On top of this, even in places with steady sales, builders are experiencing difficulty in lining up production credit. Builders cannot replenish their inventory because financial institutions, their traditional source of credit, have shut their doors to residential construction. Bolstering demand and fixing the regulatory overkill are keys to reviving the housing market and moving the economy out of recession.

Housing demand, supported by the first-time home buyer tax credit, has shown some improvement since hitting bottom in January. This has stopped the slide in home prices in some markets. In most of the country, housing prices have returned to around their 2003, pre-bubble levels.

Six years down the line, this seems like a reasonable level for home prices in all but the most overbuilt markets. They have excess inventory of houses, still a major impediment to bringing the market back into balance.

Education
By sector, firms with a commercial/industrial and institutional specialization continue to report the weakest business conditions. Architecture firm billings continue to improve in Northeast and weaken in the West.

Business conditions remain weak in all regions of the country, with firms in the West reporting the slowest conditions for the third month in a row. While a higher share of firms in the Northeast are reporting improving billings than they did several months ago, the score remains below 50. This indicates that firms with declining billings still outweigh those reporting improving billings.

Highways/Streets Construction
After passage of ARRA, the federal government began allocating funding to states and localities to begin economic stimulus projects in the areas of education, housing, health care, infrastructure and renewable energy. It was enacted into law to spur job creation and economic development, and jumpstart the nation’s lagging economy.

State and local governments have received stimulus funding and are now awarding contracts, grants, and loans for projects that will create employment opportunities and promote economic growth in local communities. However, many federal agencies still have untapped funding available for stimulus projects.

ASLA has produced a guide to economic stimulus opportunities. This guide outlines federal stimulus opportunities that landscape architects and other design professionals may find beneficial. Federal opportunities are organized into the following sections: transportation, water, sustainable design, climate change, small business, and government procurement.

Members of Americans for Transportation Mobility, a broad coalition of construction industry and business organizations, urged Congress to enact a six-month extension of federal highway and transit programs. This would help provide some sorely needed jobs in the construction industry, which has a high rate of unemployment.

In a letter to all members of Congress, the coalition notes that unemployment in the construction industry rose to 17 percent; 1.5 million construction jobs have been lost since December 2007. Although projects made possible with federal economic recovery funding are putting people back to work, even if the recovery act succeeds in creating a goal of 700,000 jobs, there will still be almost 1 million workers left behind.

Religious & Office
U.S. Treasury Secretary Timothy Geithner expressed confidence that the deepening problems of the commercial real-estate sector wouldn’t drag the economy back down, according to the Wall Street Journal. The commercial property sector has emerged as the latest concern for lenders and policy-makers amid a tide of write-downs and sliding asset values that some lenders don’t expect to peak until mid-2010.

When GDP data showed that the U.S. economy grew by a better-than-expected 3.5 percent in the third quarter, Geithner said a reliance on the private sector - and exports in particular - meant recovery would be slower than in previous downturns that relied on a consumer-led rebound.

PLANET’s approximately 3,500 member companies represent more than 100,000 individuals. Member support continues to grow with PLANET’s signature events. Participation was up for PLANET’s Renewal & Remembrance. More than $350,000 in goods and services were donated to Arlington National Cemetery this past July.

In 2009, PLANET launched the National Day of Service held on April 22, which is also Earth Day. This event encouraged a national movement of landscape and lawn care professionals to Increase the level of recognition of the industry as a steward of the environment and improve green spaces across America. About 1,500 to 2,000 individuals participated in more than 275 projects in 43 states and Canada. Next year’s event will be held again on Earth Day, April 22, 2010.

The network continues to provide its members with the tools and resources they need to help them in their businesses. The Landscape Management, Design/Build/Installation, and Lawn Care specialty groups have put together toolkits that provide these resources.

PLANET Universe, a new web portal that will launch in 2010, will be the comprehensive portal for all resources and information pertaining to the green industry. The goal is to save members time and money, provide them constantly updated and educational information, and increase the level and image of professionalism for the green industry

More than 7,000 green industry professionals have earned their certifications from PLANET. Beginning in January 2010, all active PLANET-certified individuals will be called Landscape Industry Certified. The new brand name will speak clearly to consumers, be supported and used internationally, show credibility and commitment to best practices, and leave a lasting impression. Now, everyone who is PLANET certified will be identified with this universal title.