Home builders will need to increase housing starts by 150% in the short term, to prepare for normal inventory demands.
As I write this, our country is winding down after a heated election season, and Washington D.C. now looks like a very different place. The Republican Party has gained control of the House of Representatives, with Democrats retaining a majority in the Senate, after the entire House and one-third of the Senate were up for reelection. This is a unique opportunity for our industry to influence newly elected officials through our well-organized and well-run trade associations.
In elections, politicians have a short-term focus, which is faster growth at any cost. With significant change in Washington, our industry needs to send the message that it's time for a healthier and more durable approach.
A couple of smart economists wrote recently that three things are working to lift the U.S. economy: productivity, easy money, and the natural economic healing process. Two things holding the economy back are massive increases in government spending and heavy-handed government interference in economic activity. The net result is that the U.S. could grow more quickly if it stopped spending and interfering so much.Positive signs
The signs of progress are encouraging. The economists report that private-sector payrolls are up 96,000 per month so far this year. Civilian employment, an alternative measure of jobs that surveys workers rather than employers, is up 205,000 per month. As of late summer, the household survey showed 1.8 million new private sector jobs so far this year, with further job growth being reported fairly consistently through the fall.
Easy money can not create long-term increases in wealth, and more government spending hurts the economy. The country would be better off with a measured attitude toward growth. This election could change the course of government interference with economic activity, while current budget problems are forcing austerity at state and local levels. This is good news for the future, as it will help solidify the economic progress we have already made.
While unemployment and the state of our industry are discouraging, reports indicate consumer purchasing power is accelerating, a key indicator of pending economic growth. After falling in 2008 and most of 2009, worker pay is rising again. Earnings in the private sector are up at a 4.4% annual rate in 2010, and consumers are slowly paying down debt.
Businesses appear motivated to increase their equipment investment. In the past 15 months, we have grown from utilizing just 68% of our industrial capacity up to 75%, an encouraging trend when you consider that the long-term average is about 80%. At current growth rates, we should be there in a year.
When money was cheap in the last decade, we built too many houses, but corresponding business investment was not excessive. Because high-tech investment tends to depreciate more rapidly than the industrial equipment of prior decades, U.S. companies will use their near-record profits and balance sheet cash to expand capacity in the months ahead. This is already evident in third quarter corporate earnings.
Many believe the housing market will be weak for years. I am not in that camp. Even if excess inventories do not reach normal levels until 2013, home builders will have to increase housing starts by about 150% over the next couple of years to meet normal demand when the inventory is gone.
Allowing the recovery to take hold, and removing the politically motivated judgments that are holding it back, are the healthiest ways to create sustainable growth. This is the message we need to send to our newly elected representatives.
Pierre Villere is President and Managing Partner of Allen-Villere Partners. Contact him email@example.com telephone 985- 727-4310. Visitwww.allenvillere.com.