Market Trends July 2018

7/12/2018

Construction Costs Rising
Construction costs climbed again in May, with the cost of all goods used in construction increasing 8.8% year over year. Construction industry trade groups blame much of the rising costs on trade disputes, but the new tariffs were not announced until the end of May and had no influence on the Producer Price Index for May, so contractors’ costs will rise further. In addition, mills and factories may not be able to keep up with surging orders for materials, which could lead to delays, overruns and cancelled project. Some of the increases in May included
aluminum mill shapes, up 17.3%, lumber and plywood, up 13.9%, steel mill products, up 10.5%, copper and brass, up 13.8%, diesel fuel, up 44.5%, ready-mix concrete, up 6.5% and paving mixtures and blocks, up 5.2%.

Framing Lumber Shortage, Rising Prices for Materials
The National Association of Home Builders (NAHB) reported that shortages of framing lumber are now more widespread than at any time since NAHB began tracking the issue in a consistent way in 1994. Over 30% of single-family builders responding to a May 2018 survey question reported a shortage of framing lumber, outdistancing the other 22 listed building products and materials by a wide margin. In second place were trusses (with a shortage reported by 24% of builders), followed by lightweight steel and OSB (at 20% each) and plywood (at 19%). Last year, the reported shortage percentages for these items were significantly lower—21% for framing lumber, and under 15% for all other products/materials. It is probably not a coincidence that the top five items on the 2018 shortage list are made of softwood lumber or steel, both of which have been targeted with new import tariffs over the past year.

Most Valuable Global Brands Are in Tech
Eight of the top ten most valuable brands are in tech, according to the BrandZ Top 100 Most Valuable Global Brands study. Among them are Google, Apple, Amazon, Microsoft and Facebook, with the top two, Google and Apple, growing at 23% and 28%. Amazon muscled Microsoft out of the number three spot.

Brand Marketing Frustrates Consumers
According to a recent survey of hundreds of business to consumer digital marketers, 70% of millennials are frustrated by what they perceive as irrelevant emails. Consumers want to receive one to three marketing emails per month, but brands typically send out eight to ten, and are planning on sending out even more. Email remains the top ROI-driving tool, because it is the cheapest to implement and consistently produces the highest engagement with consumers. A whopping 95% of marketers in retail say that Amazon has significantly impacted their marketing plans. Retailers make the most investment in personalization, with 79% of those in retail marketing investing in personalization tools, and 51% saying that creating a more personalized customer experience was their top-ranked opportunity. One of the issues analysts note is that the steady increase in smart devices and smart technologies has raised consumers’ expectations, and they have less patience with anything that tells them the sender does not understand them or their needs.

Virtual Assistants Vulnerable to Hacks
Amazon confirmed that Alexa recorded a private conversation a couple had in their home and then sent it to someone on their contact list without their knowledge or consent. Apparently the device “woke up” when it heard a word that sounded like Alexa. Then Alexa interpreted a conversation as a send message request, and asked “To whom?” Apparently the background conversation was interpreted as a name on the contact list. Analysts said that as AI becomes more integral, hacks, eavesdropping and data siphoning risks grow. Among the tips being handed out: don’t buy second hand, don’t defer to default settings, use a separate router and get used to hitting mute when you are not intending to say anything requiring action from your digital assistant.

Facial Recognition Could Pose Civil Rights Issues
Amazon is selling a little-known service called Rekognition to law enforcement. The powerful program uses artificial intelligence to recognize up to 100 people in a single image and quickly find faces in databases containing tens of millions of photos. Law enforcement is relying more heavily on social media and other tech tools to help them find suspects. The ACLU has gotten involved, asking Amazon to stop selling Rekognition to law enforcement. One of the biggest surveillance providers in the world, Israel-based Verint, is running a large database of Facebook photos for facial recognition. Amazon says it will only support responsible and legal uses of facial recognition.

Algorithms Used to Hack Gift Cards
Five people have been indicted on charges they hacked Target gift cards and bilked Target out of nearly $800,000. The group devised an algorithm that could identify a gift card’s bar code, then used the company’s automated customer service telephone system to find cards with balances. They then loaded the balances onto electronic wallet or mobile phone apps, redeemed them at Target stores and sold the items they purchased for bitcoins. The thefts took place at stores in Washington, Oregon, California, Nevada and Colorado. At least two of the suspects are in their twenties.

Marketing to Generation Z
After a decade of focusing on millennials (born between 1981 and 1996) many companies are starting to look ahead to the next generation. Generation Z describes the 68 million Americans born after 1997. This customer base is more diverse than any other and grew up with streaming services like Netflix that make watching commercials seem strange. The focus on mobile devices presents a special challenge to marketers; according to analysts, while millennials share this trait to some extent, they straddle the world between the traditional and the digital so traditional messages delivered in traditional ways can still resonate. Companies that focus most directly on this generation have already changed their marketing. The older members of Gen Z are entering college; marketers say they came of age in the Great Recession and are more value-conscious than millennials. They have been described as a gaming generation that dislikes having to talk to someone to make something happen; if commerce seems more like a game, they are more likely to engage, according to some of the companies that market directly to this generation.

Paid to Quit
Once a year in mid-winter, Amazon fulfillment center employees are sent an offer called “pay to quit.” The headline is “Please don’t take this offer,” and the accompanying letter is from CEO Jeff Bezos. Employees who do take it get paid based on their years of service, starting at $2,000 for one year and going up by $1,000 a year until it’s capped off at $5,000. A spokesperson for Amazon said they want people working at Amazon to really want to be there; the goal is to encourage people to stop and think about what they really want. The program was modeled on a similar program developed by Zappos, which Amazon acquired in 2009. Only a small percentage of employees take the offer, according to Amazon.

The Impact of Rising Consumer Prices
It wasn't that long ago that rising gasoline prices really hurt the economy and slowed consumer spending. The cost of a gallon of gas has risen 20% over the past year, from a nationwide average of $2.32 in mid-June 2017 to $2.88 in mid-June 2018. However, analysts say that the cost of food has a much bigger impact on Americans. Food prices have gone up just 1.2% over the past 12 months. Fifty years ago food accounted for more than 20% of a family’s annual budget. Today food eats up slightly more than 12% of disposable income while gas accounts for just 4%. The impact of higher gas prices is also less broad than the impact of rising food prices, as many younger people, city dwellers and a growing elderly population don’t drive much or rely on public transportation or ride-sharing services. Gas prices would have to rise much more to equal the all-time high of $4.11 per gallon reached in mid-2008, when the economy was heading into what became known as the Great Recession. Analysts note that people who are healthy, don’t drive much and own their own home are barely feeling the effects of inflation.

Drone Patent Aims at Warehouse Inventory Management
Amazon Technologies was awarded a patent for the use of drones to more efficiently manage the movement of inventory within a warehouse. Stock in modern warehouses is often stored on multiple levels. According to the patent application, the use of a drone allows orders to be quickly and efficiently filled no matter where items are stored. The drone collects items and brings them to a staging point/docking station where they can be consolidated and readied for shipping or distribution.

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