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My take: Mostly positive news on economic front

June 5/12, 2017: Volume 31, Issue 26

By Steven Feldman

 

Screen Shot 2016-07-15 at 3.46.11 PMAs 2017 approaches the end of its first half, this seems as good a time as any to check in with our favorite prognosticator, Alan Beaulieu, principal at ITR Economics and one of this country’s most informed economists, to see where we are and where we are going. For years, industries and associations across the U.S.—including the North American Association of Floor Covering Distributors—have relied on Beaulieu’s spot-on track record for accurate economic intelligence and actionable suggestions to drive profitable business decisions.

While Beaulieu continues to assert that we are on track for a “great depression” in 2030, for the next 12 years, “The world is your oyster,” he optimistically professes.

Some highlights: Industrial production is moving up. Manufacturing production is increasing, with strong durable goods production into 2018. And despite a slowing in nondurable goods, he expects that category will also improve.

Robotics, lean manufacturing, lean engineering, digitalization and the many additional advances in technology and efficiency are all contributing to U.S. manufacturing strength. In fact, on the 2016 Global Competitiveness Index, America ranks No. 2 just behind China; by 2020 we are predicted to be No. 1.

Global leading indicators, defense spending, foreign direct investment and oil prices are all trending up—all very good signs for the health of the economy over the next year.
Construction markets are also healthy, with housing starts expected to be stronger in the second half of 2017. For the record, they are currently at an eight-year high. Non-residential construction is also looking bright, with dollars spent at a record high so far this year. Beaulieu is projecting a 7.7% growth rate for the year.

Also keep in mind that Beaulieu believes this economic growth spurt is not a “Trump bounce.” That’s because the positive signs started before the election, not after. That’s good news for all of us because the growth is foundational—in other words, not subject to politics and sustainable into 2018.

The idea is to think differently about growth. The key is for companies to differentiate themselves so they do not become a commodity. This allows these companies to raise prices to earn more money while the economy is strong. The only way to do that is through creative, smart marketing to build a strong competitive advantage. “It’s amazing to me how many companies treat marketing like a ‘nice to have’ rather than a ‘need to have.’”

We’re still on track for a mild recession in 2019, Beaulieu believes, but if distributors and manufacturers plan for the slowdown and implement management practices to maintain their bottom lines, the slowdown will have little effect. He suggested companies must build capital in 2017 and 2018 to take advantage of investing in 2019. While other businesses are suffering during the recession, smart companies will be in a position to invest and grow market share to take advantage of the comeback in 2020.

Here are some of Beaulieu’s takeaways:

  • Focus on creating a strong niche area of expertise.
  • Invest in marketing your unique value proposition.
  • Make sure your employee training and retention programs are top-notch.
  • Rethink millennial employees and be flexible to attract and retain them.
  • Plan for higher wages.
  • Interest rates are predicted to go up twice in the next year.
  • The U.S. dollar is strengthening, which will slow down exports.
  • Immigration is important to continue our economic growth.
  • Free and fair trade is necessary to grow the economy.

 

 

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Flooring retailers find balance in ‘Goldilocks’ economy

June 5/12, 2017: Volume 31, Issue 26

By Ken Ryan

 

Screen Shot 2017-06-09 at 10.46.11 AMNot too hot that it causes inflation and not too cold that it supports a recession. Economists refer to this phenomenon as the “Goldilocks” economy. In May, for example, a record 34% of respondents to a Bank of America Merrill Lynch Fund Manager Survey described the economy in those terms.

By some measure, Goldilocks is what you want because it is predictable. Viewed another way, it can be considered underwhelming. To be sure, there are good economic signs. The unemployment rate is as low as it has been since 2001; durable goods orders are rising, which equals a growing economy; and the stock market is stable, which is a healthy sign. Conversely, gross domestic product (GDP) growth of 1.2% indicates sluggish movement. In a healthy economy, GDP growth should be around 2-3%. During the month of May, 138,000 jobs were created. A healthy economy should generate 150,000 jobs on average.

FCNews surveyed flooring retailers to ascertain what is happening in their markets.

“Goldilocks seems very fitting to describe the business here at the Rug Gallery,” said Sam Presnell, owner of the Cincinnati-based store. “We had a soft first quarter and a good, above-goal last two months. We are up in traffic the last two months and selling better quality goods. I’m feeling insecure and am cautious in my buying at this point.”

Foulk’s Flooring America, Meadville, Pa., is another dealer seeing an uptick in residential foot traffic and a trend toward better goods. “A big surge has been in walk-in showers; as the baby boomers age we see people replacing bathtubs with walk-in showers and all the design capabilities that go along with that,” said Mike Foulk, president. “Our commercial work is surging—both Main Street and contract are extremely busy. We are as busy as we can be with the available installers.”

Good vibes can also be felt in San Antonio, where Billy Mahone III, manager of Atlas Floors Carpet One, reports “a general sense of optimism. Retail traffic and sales have been up, so we are doing our best to take advantage of this renewed sense of confidence and close as much business as possible.”

However, there are some flooring dealers who report somewhat disappointing numbers, or at the very least inconsistent sales month-to-month or quarter-to-quarter. As Phil Koufidakis, owner of Baker Bros., Phoenix, explained, “As usual the economy is hard to predict. Oftentimes at a 20,000-foot level everyone says how great it is, but it doesn’t always translate to the street. Q1 and April were good; May softened. So…we find it here to be middling-plus so far this year and we are mostly bullish on the rest of the year. That either makes me an optimist or an idiot.”

David Snedeker, division merchandise manager-flooring, Nebraska Furniture Mart, called 2017 “underwhelming” to this point. “While we are up single digits for the year, it has yet to meet the expectations we had coming into 2017. Hopefully the second half will be more robust, and the industry can enjoy a bigger slice of customer demand.”

Back on the East Coast, a mild spring gave some retailers reason to believe 2017 might be a banner year. “In Q2 our business was not as robust for what we forecast as the spring broke early due to the mild winter in our market,” said Brian Witkin, executive vice president of sales for Cherry Hill, N.J.-based Avalon Flooring, with 14 locations in three Mid-Atlantic states. “We are working smarter to sell the entire home to provide a one-stop shopping experience leveraging the large breadth of products we carry.”

Hanover, Pa.-based Charles F. Zeigler & Sons got off to a relatively hot start before business cooled off at the end of April. Not to worry, said Bill Zeigler, co-owner, noting, “Our area is usually immune to the extreme conditions.”

Favorable business conditions have been shining brightly on some dealers in the Sunshine State. Montgomery’s CarpetsPlus, with two locations in the Sarasota, Fla., market has enjoyed a 6% increase in sales over last year. “We are in one of the most desirable areas to live and we are experiencing tremendous growth right now,” said Missy Montgomery, co-owner. (Sarasota, she noted, will be the new winter residence of the Atlanta Braves, and 20,000 new homes are expected to be built in her market over the next 10 years.) “This is the slower time of the season for us because the snowbirds leave. However, that being said, the year-round residents get things done now.”

For John Taylor, owner of Taylor Carpet One Floor & Home, Fort Myers, Fla., sales in 2017 to date have exceeded the previous two years. “We seem to be seeing larger jobs coming through as well as better opportunities in the commercial side of the business.” About the only thing holding Taylor’s business back is the paucity of installation labor, which he said has impeded his ability to grow. “We have, however, seen a number of quality people applying for sales and other jobs, which I attribute to people moving south to our area.”

 

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Trump’s policies aim to boost manufacturing

April 24/May 1, 2017: Volume 31, Issue 23

By Reginald Tucker

 

Screen Shot 2017-05-01 at 10.05.31 AMLower corporate tax rates coupled with a slightly weaker dollar, less regulation on business and renegotiation/restructuring of historically lopsided trade deals. These are the key measures that Harry Moser—president of the Reshoring Initiative and one of the foremost authorities on all things related to onshoring—believes will give U.S. manufacturing a much-needed shot in the arm. “If President Trump gets those things passed, I see millions of manufacturing jobs coming back to the U.S. over the next 10 years.”

Following the election of President Trump, leaders of the Reshoring Initiative —a non-profit advisory group focused on bringing American jobs back home after they were outsourced to other countries—recommended a robust national strategy to achieve then President-elect Trump’s goal of returning millions of U.S. manufacturing jobs. During the campaign, Moser said, candidate Trump focused on seemingly uncomplicated actions such as imposing 35% to 45% tariffs on Mexican and Chinese goods, renegotiating trade agreements such as NAFTA and cutting the corporate tax rate to 15%. President Trump, he noted, will need to utilize a broader portfolio of actions, especially those that are proven and can be unilaterally implemented by the U.S. and passed by Congress.

“The country has a unique opportunity to address a broad range of economic and social issues,” Moser said. “Reshoring’s success bringing back hundreds of thousands of jobs in the last six years despite the headwinds faced by U.S. manufacturing is proof that millions can, and will, be brought back when the headwinds are eliminated.”

Screen Shot 2017-05-01 at 10.06.04 AMThat movement may have already begun, Moser said. By his count, the rate of reshoring announcements has doubled in November and remained at that level. One prominent example is the Carrier Corp. case—the commercial refrigeration company that was persuaded by then Presidential candidate Trump to scale back jobs it had planned to outsource to Mexico.

At the same time, there are critics of Trump’s economic policies who argue that his proposed tax cuts—which would, theoretically, fuel investment, hiring and economic development—would actually result in $6 trillion in lost revenue over the next decade (“Donald Trump’s Economic Plan, Up Close, Doesn’t Add Up,” The Wall Street Journal).

Trend or anomaly?
The reshoring phenomenon is not a passing fad, according to Moser. If you look at the balance of flow of jobs going back, say, 15 years ago, the U.S. was losing about 200,000 manufacturing positions a year to offshoring. But by 2016, he said, we were—net—bringing in 20,000-30,000. “That’s a reversal of about 250,000 per year. We’ve gone from a huge net loss to a moderate gain.”

Moser is primarily seeing more manufacturing positions crop up in industries such as transportation (automotive, specifically), machining, electronics and, surprisingly, apparel. The regions generating the most investment, he said, are the Southeast U.S., Texas, Michigan and Ohio. “GM and Ford have brought back work from Mexico especially, and we’ve had Toyota as well as the German car companies investing billions and hiring thousands of people.”

In the home furnishings category, Moser also reports big names such as Ethan Allen, Emerald Home Furnishings, LaZ-Boy, among others, have also increased domestic production in recent years.

Reasons to return
In the past, U.S. manufacturing companies looking to save on production costs merely looked at one variable in making their case to move more production offshore: the flat cost of labor. But with wages in China rising about 12-15% per year, there is no longer a clear-cut advantage. “The cost difference in China has shrunk to the point where other factors become significant enough to offset that remaining difference,” Moser stated.

Other factors supporting U.S. manufacturing: higher productivity, lower electricity costs and lower capital equipment costs.

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My take: Things are turning around, slowly but surely

by Steve Feldman

I’m not an economist. Never professed to be. Simply not smart enough, don’t have the time. I’m guessing many of you sail in my boat.

But I am smart enough, and have enough time, to follow one economist— well, two: The Beaulieu brothers who comprise the Institute for Trend Research. Why them? Because they are correct 96% of the time. Their website says so. I’ve had the fortune to see both speak at NAFCD conferences, and, while I can’t attest to the 96%, they always seem to be spot on. Continue reading My take: Things are turning around, slowly but surely