Residential Construction Leads the Recovery
According to Dodge Data & Analytics, residential construction is up 19% so far this year, with both single-family and multifamily construction strong. Industry analysts don’t expect either the residential construction sector or the housing sector overall to slow down significantly. The urgency around demand that helped drive up prices is waning and buyers are starting to say no to prices that are significantly higher than the norm. The lumber bubble has begun to burst, according to IHSMarkit. Dodge predicts a 70.2% overall hike in softwood lumber for 2021 followed by a 34.8% drop in 2022. Plywood prices will rise 39.8% this year, but will drop 28.4% in 2022. Rebar prices are expected to be up 30.9% this year, as are prices for steel structural shapes. In the US price increases are due to supply chain issues and increases in the prices of scrap. Longer lead times have made imports much less attractive. Both rebar and structural shapes prices are expected to drop between 15% and 17.4% in 2022.
Renovate or Move?
More than half (52%) of US homeowners are considering renovations as an alternative to buying a new home, and more than seven in 10 homeowners are already planning or considering a home renovation project in the next six months, according to a new survey from DeWalt. According to the survey, most homeowners (84%) are planning on or considering using a professional contractor. However, more than half of the homeowners who had contacted a professional reported waits of at least three months before work could get underway.
The most common renovation projects included remodeling bathrooms (42%), kitchens (40%) and bedrooms (28%). Contractors are needed most for electrical work, flooring, plumbing, windows and structural work.
What’s important when selecting a contractor? Price led the list at 62%, followed by being licensed (52%) and behaving professionally (49%). A majority of homeowners (53%) relied on word of mouth to find their contractor; 40% used online search tools.
According to the survey, 78% of homeowners appreciate the skills of a professional home contractor more than they did 18 months ago.
Buy a Home Online
People looking for a new home embraced virtual home tours as a way to shop around without going out in the world. As the pandemic dragged on, people adapted to buying a wide range of products online, including big-ticket purchases such as cars. Now some home builders are taking that concept even further. Two big home builders, Pulte Group and Taylor Morrison Home, recently piloted programs that allow people to choose, design and finance a new home online and just put the whole thing into their shopping cart when they’re done. The builders thought they were just testing the concept; the overwhelming positive response really surprised them. In just six weeks, Taylor Morrison saw more than 1,500 shopping cart entries with a 60% conversion rate, which is ten times what they would normally expect from an in-person browser. CBS Sunday Morning interviewed one of the customers who bought a new home online who said she couldn’t be happier and wouldn’t change a thing.
Inflation and Interest Rates
The period of higher inflation we have seen of late may last longer than originally anticipated and interest rates may need to start rising as early as late next year, according to Fed officials. At the end of 2020 a dozen Fed policymakers felt that the record-low interest rates put into place to help deal with the pandemic crisis would need to remain in place into 2024. What’s changed? Vaccinations have proceeded at a much stronger pace than originally forecast and the reopening of the economy has proceeded more rapidly than expected, which has driven up demand and inflation. Prices for goods such as lumber and used cars have pushed some measures of inflation to multiyear highs. The Fed also noted that another three or four months of job gains should be enough progress for them to consider pulling back on the bond purchases that have been going on since the pandemic struck. A slowdown in bond purchases would be an early indicator of an eventual increase in rates. However, economists are quick to point out that a return to the double-digit inflation of the 1970s and 80s is highly unlikely. Most of the current spikes in inflation are being driven by transitory factors such as temporary supply shortage and bottlenecks. Nevertheless, it is likely that inflation may run above the Fed’s Goldilocks target of 2.0% for some time.
Retail Sales Outpacing Expectations
The National Retail Federation (NRF) issued an upwardly revised 2021 sales forecast and now expects retail sales to grow between 10.5% and 13.5% over 2020, to a range between $4.44 trillion and $4.56 trillion. That’s a big jump from initial forecasts of growth between 6.5% and 8.2%. The initial forecast was made when there was a great deal of uncertainty about vaccine distribution, consumer spending and fiscal stimulus. NRF seldom revises its forecast in such a dramatic fashion but noted that the economic data that has come in since February has made it clear sales would grow much more robustly than anticipated. Sales have now grown year-over-year every month since June 2020.
Ecommerce Boom Continues
The 2021 Ecommerce Shipping & Benchmarks Report found that 29% of US consumers surveyed said they will continue to shop for more items online than they did before the pandemic. The survey covered the time period between April 2020 through March 2021 and predicts that between 20% and 30% of the global CV19-related shift to online purchasing will become permanent. According to the survey, the average order was $78.09 and the average shipping cost was $9.43. Looking over a longer time frame, they found that package deliveries spiked in early 2020, rising 147% in spring compared to spring 2019 and 130% in summer. Winter 2020-21 saw a 96% increase in online purchases. Some surveys have found that as many as 89% of respondents plan to do more shopping online. According to the report, when the pandemic pushed people into relying more on online purchases and other services they discovered how easy and convenient it was to shop from home. It also raised the bar for everyone in ecommerce. Almost 80% of respondents said they expected brands to find ways to offer the same shipping speeds as they did before the pandemic and 51% said they did not expect to pay more for faster delivery.
Customers Expect Free Shipping
A trend report from online selling platform Jungle Scout found that 80% of online shoppers expect free shipping if they meet a set order amount and 66% expect free shipping regardless of how much they spend. As far as delivery goes, 91% of respondents expected online orders to arrive within a week; 9% wanted same-day delivery. No matter what the expectations, 70% said they’d be upset if an order did not arrive on time. According to Jungle Scout, 71% of consumers reported shopping at Amazon in recent months; 39% shopped online at Walmart and 20% shopped online at Target. A Ware2Go survey found that 80% of consumers are more likely to hit the Buy button if shipping is free and 75% said two-day shipping would also be an incentive. And ShipStation found that consumers want more visibility into where their package is and when it will actually arrive.
Most Patriotic Brands
Jeep came out on top for the 19th consecutive year in the Brand Keys ranking of the 50 brands that consumers believe best embody the values of patriotism. Walmart took the number two spot, and Amazon came in at number four. The Home Depot ranked in the top twenty, coming in at 17. The results are based on a national sample of 5,804 consumers 16 to 65 years of age balanced for gender and political affiliation and drawn from all nine US Census regions. Consumers assessed 1,172 brands. Chain Store Age noted that a brand’s ability to connect with consumers helps build loyalty.
Amazon Applies Artificial Intelligence to Worker Safety
Amazon is testing a wide variety of robotic and smart technology solutions designed to create a safer and more worker friendly workplace for their human employees. One project involves using motion-capture technology to assess the movements of volunteer employees performing tasks in a lab that are common in facilities. The software allows Amazon scientists and researchers to compare data captured in the lab to industry standards. Amazon is also testing a new workstation called Ernie that is designed to reduce the need for employees to reach up or bend down when retrieving items from mobile shelves as products move through the center. Ernie takes totes off the robotic shelf and uses a robotic arm to deliver the tote to an employee, who is then able to remain in a more comfortable, stable and ergonomic position. A robot named Bert (all of Amazon’s robots are named after Sesame Street characters) is one of the first robots that doesn’t need to be confined to restricted areas but could be deployed across a facility. Other robots that transport carts and do other jobs designed to make the environment safer for employee are also being tested. Kermit is focused on moving empty totes from one location to another so Amazon can get them back to the starting line for refilling. Kermit is doing so well it’s currently being tested at several sites across the US. Amazon says the robots are helping them visualize and identify relatively simple changes that can have a big impact.
Amazon Changing Delivery Expectations and Shipping Logistics
The Amazon logistics network is a marvel of technology and engineering that delivers most orders in just a day or two. Most US Amazon orders are handled out of 110 US fulfillment centers, many of which are 800,000-to one-million square foot warehouses filled with robots and staffed by at least 1,500 full-time employees. Slightly smaller centers handle bulky goods such as furniture, lawn mowers and mattresses. The average worker at a fulfillment facility makes about $40,000 a year plus benefits. They rely on Kiva robotics to help them pick the order, pack it and SLAM it, which stands for scan, label, apply and manifest. Then the package rides miles of conveyer belts and is sorted out by destination zip codes. Amazon used to rely on FedEx, UPS and the postal service to actually get orders that last mile or two to the customer’s door, garage, trunk or designated locker, supplemented by freelancers who drove their own vehicles and made about $20 an hour. But now Amazon is rolling out their own fleet of dark gray Prime vans to handle many deliveries and plans to convert to an all-electric delivery fleet by 2040. Supporting this US network are 20,000 tractor trailer trucks and Amazon’s own cargo airline, Prime Air. The size of the Prime Air fleet has doubled this year to 85 leased jets and Amazon is building its own $1.5 billion airport hub in Kentucky.
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