Construction Spending Trending Lower
Construction spending has been about 0.3% lower than in the first five months of 2018, although spending in April and May has averaged about 1.6% higher than in January-March at an annual rate. Growth has been led by a public infrastructure spending boom, which has helped offset sustained weakness in home-building. Residential construction spending year to date is down more than 8% compared to the first five months of 2018. On a monthly seasonally adjusted basis, home building peaked in April 2018 and has declined by more than 11% since then. Most of the decline is due to a drop in what Census categorizes as “improvements.” The category includes construction of additional housing units in existing residential structures, finishing of basements and attics, kitchen and bath remodels, adding swimming pools and garages and replacing major equipment such as water heaters, furnaces and air conditioners. “The remodeling market has decelerated somewhat due to ongoing supply-side challenges, as well as year-over-year declines in existing home sales,” said NAHB Chief Economist Robert Dietz. Market conditions would be better if not for labor shortages and rising construction costs making it difficult to complete some projects at prices home owners can afford.” Spending on new housing is down about 4% since the peak last year. Single-family housing construction has dropped about 7.5% while multifamily construction is up about 10%. Home improvement spending is down 24% since last April. About 75% of the total decline in residential investment over the past year can be traced to a drop in spending on renovations.
New Home Market Declines
US private residential spending has dropped more than 11% since April 2018, according to Barron’s. Americans bought 302,000 new single-family homes in the first five months of 2019, up just 4% from the first five months of 2018. More homes were purchased in the first five months of 2019 than in any year since 2007, although demand is still much lower than it was during the 1996 to 2006 housing boom. Mortgage rates have been dropping since November 2018, helping to boost both consumer and builder sentiment. The median value of new homes sold in the first quarter of this year was 9% lower than peak values at the end of 2017. Consumers benefit from the downward trend in prices, but sales prices need to be high enough for builders to recoup construction and marketing costs.
Skilled Trades Academy
The Hoover, Alabama school district has more than 125 students enrolled in their new Skilled Trades Academy. During the first year students will take courses that introduce them to carpentry, electrical work, welding and HVAC. During the second year students will be able to focus in more detail on the trades that interest them. Potential future courses include plumbing, heavy equipment operation and advanced manufacturing. Students will have the opportunity to become certified in workplace safety and earn industry credentials in each of the trades being taught. The school district is partnering with the Alabama AGC as well as private industry. Hoover is planning on expanding the Academy in order to offer night classes for adults.
Digital Ad Spending
Total spending on digital advertising will grow to $520 billion in 2019 and average annual growth of 15% over the next five years, according to Juniper Research. Digital advertising includes online, mobile browsing, in-app and digital out of home and TV services. Amazon’s revenues will continue to grow and account for 8% of global digital ad spend by 2023, up from 3% in 2018. Google’s ad revenues will exceed $230 billion by 2023, but their global market share of spend will fall 1% over the next four years due to the growth of competing platforms, including Amazon and Baidu.
Consumer Views of Online Shopping
Consumers are growing more comfortable with shopping online, with 46% saying they are more open to purchasing big-ticket items like a grill or even a car online than they were a year ago, according to a new study from B2B marketing firm Walker Sands. One in five respondents stated that they don’t care who they buy from, they are focused on price and convenience. A third of all respondents and 43% of millennials reported receiving at least one package from Amazon each week. Paradoxically, 25% of respondents say they feel more connected with brands when they shop in a physical store. In what the study termed the Marie Kondo Effect, 66% of respondents said they are buying less than they used to because they are consciously trying to keep a clean, organized life. 72% of people ages 18-35 said they were consciously buying less.
Handling Online Order Delivery
FedEx offered big discounts on their air network after ending their air-shipping contract with Amazon in June. They’re offering guaranteed two-day air delivery for the same price as shipping items FedEx ground in order to win over shippers from UPS. FedEx is projecting growth in online shopping will double the number of packages shipped in the US to 100 million a day by 2026 and is now trying to capitalize on that growth after initially being reluctant to handle too much of the lower-margin ecommerce shipping market. UPS is overhauling their network to adapt to the online-shopping boom, spending billions of dollars to build large automated sorting facilities and delivering packages six days a week. The FedEx legacy air network was created decades ago to deliver shipments like legal documents and medical supplies by 8 a.m. or 10:30 a.m. Consumers generally don’t care about what time a package arrives, as long as it arrives quickly. Amazon has about 400 fulfillment centers, sorting centers and air hubs in the US, according to supply chain consultants MWPVL International. Many retailers are using their own stores to pack and ship orders placed online so shipments are traveling short distances where air delivery would not be required. FedEx expects that delivery distances will continue to shrink and that the vast majority of growth will be fulfilled and delivered in the same metropolitan area. One way FedEx is adapting their Express network is with a service called Extra Hours. Drivers do a sweep of AutoZone, BestBuy, Target and other stores late at night to pick up online orders bound for nearby homes. The packages are then brought to a nearby hub where packages brought in on jets are sorted, and all go out on FedEx Express vans for delivery the next day.
The Humanization of Alexa
Being third to market with a voice assistant turned out to be a “happy accident,” according to Dave Limp, Amazon’s senior vice president for devices and services. Apple had already introduced Siri and Google was already using “OK Google.” Limp said that initially the phone assistants were very utilitarian, and were used for command and control, such as navigation, where people wanted concise information and having a personality got in the way. So Amazon developers set out to create a voice assistant with a personality of her own. As people have discovered, Alexa has opinion about all sorts of things. And they vary slightly from country to country. Her favorite beer in the US is different from her favorite brew in Germany. They wanted her to be smart, humble, helpful and sometimes funny, characteristics they felt were important. But even the developers did not anticipate how much people would relate to Alexa’s personality. A quick look through the reviews of the Echo smart speaker reveals countless examples of people calling Alexa playful and funny, a great companion and even a friend. And for people who don’t want their smart speaker to have opinions, there is a feature called brief mode that can be enabled in the Alexa app that provides a much more utilitarian experience. No word on what percentage of Alexa users have activated this feature.
Cities with fewer than 200,000 residents grew faster than larger metropolises between 2017 and 2018 as high housing prices chased many people away from big cities and their closest suburbs, according to a Stateline analysis of US Census Bureau estimates, according to a recent story from AGC. The biggest cities grew by a collective 326,000 people, less than half the number earlier in the decade, and considerably less than the 421,000 for cities with populations between 10,000 and 50,000. And small towns of fewer than 10,000 people grew more quickly than earlier in the decade, collectively attracting more than 142,000 new people last year, driven in part by retirees seeking affordable housing.
Amazon celebrates their 25th birthday this year facing a host of challenges and challengers. Several Senators and other prominent politicians have taken aim at Amazon and other tech giants, threatening to subject them to new regulations and limit their ability to grow and expand their reach. Walmart has Amazon squarely in their sights and is introducing a steady stream of new offerings meant to make Walmart more competitive and offer better value to people looking for Amazon-like benefits. And a host of smaller competitors has sprung up, including new ecommerce player Waybuy. Houston-based Waybuy offers free shipping on all orders of $25 or more in Texas and orders of $39 or more in other states. No membership fee is required. They also offer free same-day delivery in Houston and surrounding suburbs and free next-day delivery in Texas with the $25 minimum order. Deliveries outside of Texas take one to three days. Verishop is another newcomer, targeted at millennials. Their standard offerings include free two-day shipping, free returns and 24/7 online customer service. Verishop is specifically targeting younger consumers with curated influencer assortments and a focus on socially responsible products.
Brand Intimacy Study
Amazon once again led the retail industry in MBLM's Brand Intimacy 2019 Study, with Amazon subsidiary Whole Foods coming in second. Brand intimacy is defined as the science that measures the emotional bonds people form with the brands they purchase and use. Amazon not only led the retail segment, but ranked number three overall. Also in the retail top ten were Target, Costco, Walmart, Macy’s and eBay. The top three industries overall were media and entertainment, automotive and technology and telecommunications. The Brand Intimacy 2019 Study also revealed that top intimate brands in the U.S. continued to significantly outperform the top brands in the Fortune 500 and S&P indices in both revenue and profit over the past 10 years. Amazon ranked number one among women and users over 35, whereas men preferred Whole Foods and millennials favored Target. Amazon was also the preferred brand among users with incomes under $100,000, while Whole Foods was the top brand for those with incomes over $100,000.
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