The Impact of Coronavirus
As of the end of February, there were a total of about 85,000 confirmed cases of COVID-19, and about 3,000 confirmed deaths. For perspective, in the US alone there have been more than 32 million cases of flu reported this flu season, which so far have resulted in 300,000 people being hospitalized and 18,000 deaths. The reason there has been such widespread panic over coronavirus is that there is no vaccine, and thus far no effective way to halt its march around the globe. Restrictions on travel and public assembly have caused many companies to cancel events. Japan closed their entire school system for a month. Many factories in China remain shuttered, disrupting the global supply chain and impacting many businesses.
Many building materials are sourced from China. According to the NAHB, the US imported $66.7 billion in residential construction goods during 2017, with about $21.4 billion coming from China, including kitchen cabinets, vinyl floor coverings and lighting fixtures. Restrictions in China are already impacting airlines, tech companies, automakers and the tourist industry among others. There was some speculation that consumers could shift discretionary spending from foreign travel to home improvement under the cloud of the coronavirus.
Coronavirus is expected to curb global economic growth by 0.2% to 0.3% in 2020 as the severity of the infections surpasses the SARS outbreak in 2002 and 2003. Coronavirus will undoubtedly have a substantial effect on China’s GDP growth; the Chinese economy now accounts for about 17% of global GDP. White House economists still see only a 0.2% reduction in first quarter growth but JPMorgan has slashed their Q1 GDP forecast by 0.25%, Goldman Sachs trimmed theirs by 0.40% and Moody’s downgraded their outlook by 0.45%.
New Home Buyers 2020
Markets in the South and West will see the highest housing activity in 2020, as more millennials move out of big cities in search of more affordable markets, according to a panel of industry experts at the International Builders Show in Las Vegas. Markets such as Austin, Nashville, Charlotte and Tampa are all seeing stronger net migration from the Northeast and West. The median resale price in the South in January was 14% below the national average, 26% below the Northeast and a whopping 42% below the West.
One in four millennials has been looking for a home for more than a year. 16% of millennials are looking in urban areas, 34% are looking in the suburbs and 45% are looking for a home in a small town or rural area. Only 5% of millennials want to rent, but they are dealing with affordability issues and supply constraints. In 69% of metros with a population of 500,000 or more, renting is more affordable than buying. That jumps to 84% of metros with a population of 1 million or more.
Analysts point out that many rentals today offer a lot of high-quality features and amenities, and renters who are used to granite countertops and other luxury touches often experience sticker-shock when they see how much they have to spend to get the same features in a home of their own.
Baby boomers are currently staying put, choosing to invest in their current home rather than move. Only 17% are dissatisfied with their current home. Other factors that keep boomers rooted are the fact that 23% have no retirement savings and 30% of those between 62 and 66 have postponed retirement.
Top Home Design Trends
Walk-in master bedroom closets, low-emission windows and laundry rooms are the most wanted features in typical new homes in 2020, according to an NAHB survey of single-family home builders. Energy efficient features such as efficient lighting, programmable thermostats and Energy Star appliances are also likely to be included, as are open design concepts such as great rooms and first floor ceilings of nine feet or higher.
Consumers want smaller homes, not only in overall square footage, but in the number of features such as bedrooms and bathrooms. The majority of both first-time buyers and repeat buyers would rather have a smaller home with high-quality products and services than a bigger home with fewer amenities. The top features desired by both groups include laundry rooms, Energy Star windows, hardwood flooring, walk-in pantries, patios, ceiling fans and a double-sink in the kitchen.
Foundations Support Trade Training
The Home Depot Foundation and the Home Builders Institute (HBI) are teaming up to provide $500,000 to fund student training in home construction careers in high schools across the country. Additionally, the National Housing Endowment (NHE), the philanthropic arm of NAHB, has pledged $200,000 in support. The combined $700,000 will provide training in construction trades skills for thousands of students. HBI will be able to provide hands-on curriculum along with instructor training and materials. Upon completion, students will earn a pre-apprenticeship certification endorsed by NAHB and recognized by the US Department of Labor. The programs will be available at no additional cost to students. Industry data show that there are an estimated 311,000 open jobs in residential construction, including carpentry, electrical and plumbing.
UPS Evaluates Delivery Options
UPS ordered 10,000 electric delivery trucks from UK-based Arrival Ltd and is testing Waymo self-driving vehicles to carry packages as part of the company’s efforts to cut emissions and delivery costs. Last fall Amazon ordered 100,000 electric vans from Rivian, a Michigan startup partially funded by Amazon. Amazon’s growing delivery network is pressuring UPS and rival FedEx. UPS plans to take ownership of all 10,000 electric vehicles by 2025; the first trucks should be on the streets in Paris, London and as yet undisclosed US cities in the second half of this year. Retailers are all exploring the most efficient and cost-effective ways to move goods the last mile from stores to customers’ homes.
Retail Tech Incubators
Many retail tech incubators are folding, with Neiman Marcus, Nordstrom and Target all closing some of their incubator programs in the last few years. Lack of resources and support from senior management is cited as the biggest reason incubators fail. Some incubators have been very successful, including Walmart Labs, which has created a new crowdsourced delivery system that reduced costs by more than 50%. Walmart has been liberal with support for Walmart Labs, and considers the investment critical to the company’s future success.
Mixed Feelings About Amazon
Two out of three customers would consider abandoning Amazon without free shipping, and one in four have negative feelings about Amazon’s impact on retail overall and the environment, according to a new consumer survey conducted by Convey. However, a full 21% of shoppers who were negative about Amazon’s impact on retail still reported buying at least 50% of all their good on Amazon; the same results were true for shoppers who were concerned about Amazon’s impact on the environment. The survey of 2,000 US consumers showed that the key to Amazon’s success is their industry-changing shipping options. Fast and free shipping was the number one reason people shopped at Amazon, selected by more than 80% of respondents, followed by a broad selection of merchandise (69%) and best pricing (49%). Consumers are more interested in shipping being free than in the speed of delivery, with more than half saying they would still use Amazon if it took 3 to 4 days for orders to arrive, as long as shipping was free. Package theft remains the biggest concern for Amazon shoppers, with 30% worried about theft and 14% concerned about what would happen if they needed to return an item.
NABE Economic Forecast
The majority of top professional economic forecasters are more optimistic about real GDP growth than they were just three months ago, according to the National Association for Business Economics (NABE) latest business conditions survey. About 67% of respondents expect inflation-adjusted GDP to increase by 1.1% to 2% over the next four quarters; 30% of respondents now expect growth between 2.1% and 3%, and 63% expect minimum impact from trade and tariffs. Roughly half of respondents reported that their firms raised wages and salaries in the past three months and 62% expect their firms to increase pay in the coming quarter.
National Debt Ballooning
The US will spend $1 trillion more than it collects in 2020 and deficits will reach or exceed that threshold every year for the foreseeable future, according to the Congressional Budget Office. Debt held by the public is projected to be 81% of GDP this year and will reach 98% by 2030, based on a combination of tax cuts and projected increases in spending, particularly on safety-net programs such as Medicare and Social Security. Budget deficits were larger after the 2008-2009 financial crisis but the difference now is that the gap between taxes and spending has remained high even as the economy has extended a record-long expansion.
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