the forecast for 2019 - bright skies or storm clouds?retailing •independent garden centers...

The Forecast for 2019 - Bright Skies or Storm Clouds?

Dr. Charlie Hall

Texas A&M University

c-hall@tamu.edu

Clearing up errant assumptions

•Stock market performance does not equal economic performance.

•Consumer confidence does not equal economic performance.

MINING OIL WELLS FORESTRYFISHERIES

CHEMICAL PLANTSMETAL WORKING

Mature stageConsolidationShakeoutHyper-competitiveInnovative

ConsumersMarginsLaborHousingDistributionEconomy

Issues

Structural aspects

• Financial • Distribution• Marketing• Trade Assn.• Media / Pubs

Trade AgreementsTrade Barriers & Import RestrictionsAPHIS/Plant Protection Quarantine

Patents, Royalties & CopyrightsEnvironmental protection regulations

Pesticide and chemical regulations

Regulatory

End Consumer

•Bouquet manufacturers•Wholesale florists•Landscape contractors•Maintenance firms•Arborists•Re-Wholesalers•Landscape architects

SERVICE FIRMS

$92B

$59B

$31B Nursery& Greenhouse

Firms

RETAILING•Independent Garden Centers•Grower-Retailers•Florists•Supermarket floral depts.•Discount mass

merchants•Home improvement centers•Farmers markets•Hardware stores•Mail order & internet

INSTITUTIONAL•Schools; Churches•Hotels; Resorts•Hospitals•Restaurants

•Interior landscapes•Golf courses•Corporate landscapes•Public areas - ROWs•Community parks

PAPER MILLS

Paper products:(Catalogs; signs;

packaging)

Wrappings,Containers,

Labels,Irrigation

PLASTICSMANUFACTURING

Oil, fuel, & other

petroleumproducts

Plant protection products

FERTILIZERPLANTS

Structures, tools, equip &

Machinery

AG COLLEGES;RESEARCH FARMS

Peat & Bark

products

Services

-16%

+10%-3%

$196 Billion Green Industry Supply Chain

MINING OIL WELLS FORESTRYFISHERIES

CHEMICAL PLANTSMETAL WORKING

Mature stageConsolidationShakeoutHyper-competitiveInnovative

ConsumersMarginsLaborHousingDistributionEconomy

Issues

Structural aspects

• Financial • Distribution• Marketing• Trade Assn.• Media / Pubs

IMPORTS:•Columbia, The Netherlands,•Ecuador, Mexico, Canada, •Guatemala, Australia, Israel,•England, Costa Rica, Hawaii,•Philippines, Japan, China,

Africa

EXPORTS:•Market Area to Market Area•Between states•Canada•Europe

Trade AgreementsTrade Barriers & Import RestrictionsAPHIS/Plant Protection Quarantine

Patents, Royalties & CopyrightsEnvironmental protection regulations

Pesticide and chemical regulations

Regulatory

TradeINDIRECTMARKETING

DIRECTMARKETING

End Consumer

•Bouquet manufacturers•Wholesale florists•Landscape contractors•Maintenance firms•Arborists•Re-Wholesalers•Landscape architects

SERVICE FIRMS

$92B

$59B

$31B Nursery& Greenhouse

Firms

RETAILING•Independent Garden Centers•Grower-Retailers•Florists•Supermarket floral depts.•Discount mass

merchants•Home improvement centers•Farmers markets•Hardware stores•Mail order & internet

INSTITUTIONAL•Schools; Churches•Hotels; Resorts•Hospitals•Restaurants

•Interior landscapes•Golf courses•Corporate landscapes•Public areas - ROWs•Community parks

PAPER MILLS

Paper products:(Catalogs; signs;

packaging)

Wrappings,Containers,

Labels,Irrigation

PLASTICSMANUFACTURING

Oil, fuel, & other

petroleumproducts

Plant protection products

FERTILIZERPLANTS

Structures, tools, equip &

Machinery

BREEDERSPropagators

Brokers

AG COLLEGES;RESEARCH FARMS

Peat & Bark

products

Services

-16%

+10%-3%

$196 Billion Green Industry Supply Chain

ConsumersMarginsLaborHousingDistributionEconomy

Issues

People afford what they want.-- (Lowell Catlett)

?

DIFM

$7T

ConsumersMarginsLaborHousingDistributionEconomy

Issues

✅

Margin compression

Index of prices paid = 121.7 +3.43% YOY

ConsumersMarginsLaborHousingDistributionEconomy

Issues

✅

✅

Unemployment rate – 3.9%; U6 rate 7.6%

Average hourly earnings up 3.2% YOY

CPI up 2.2% YOY

Labor force participation rate at 63.1%

7.1M – 15M vacancies / yr.

ConsumersMarginsLaborHousingDistributionEconomy

Issues

✅

✅

✅

Housing market

• 1.3 M starts• Home prices up 5.5% YOY• Lack of existing home

inventory (<2 mos.)• Remodeling up 7%• Rising number of 1st-time

buyersHEADWINDS

• Lumber prices• Shortage of lots• Labor availability• Tax Cuts & Jobs Act

ConsumersMarginsLaborHousingDistributionEconomy

Issues

✅

✅

✅

✅

• Freight rates are up 9.5% YOY.

• Shortage of drivers.

• Tonnage increasing by 3.4% YOY.

• Cost increases due to ELD, demand, etc.

ConsumersMarginsLaborHousingDistributionEconomy

Issues

✅

✅

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Current Economic Conditions

Year Regular $/gal

Diesel $/gal

2015 $2.43 $2.71

2016 $2.15 $2.31

2017 $2.42 $2.65

2018 $2.73 $3.17

2019 $2.50 $2.95

Aging population

Mobile workforce

Web conferencing

Millennials drive less

Urban pop growth

Interest rates

Jerome Powell

Long-term Economic Forecast

Federal Debt Held by the Public

• Federal spending on interest payments on the debt will increase.• Lawmakers would have less flexibility to use tax and spending

policies to respond to unexpected challenges.• The likelihood of a fiscal crisis in the United States will increase.

When will the next recession start?

St. Louis Fed Financial Stress Index

• Average weekly hours, manufacturing• Average weekly initial claims for unemployment insurance•Manufacturers’ new orders, consumer goods and materials• ISM Index of New Orders•Manufacturers' new orders, nondefense goods excluding aircraft • Building permits, new private housing units• Stock prices, 500 common stocks• Leading Credit Index™• Interest rate spread, 10-year Treasury bonds less federal funds• Average consumer expectations for business conditions

Dec 2017

Yield Curve

• Ceteris paribus

25% chance of recession during 2019

50% chance of recession during 2020

80% chance of recession during 2021

Likelihood of recession

What could derail this outlook?

• Monetary or fiscal policy gone awry.

• Trade war effects.

• OPEC reneging on output deal.

• A bubble bursting.

• Deep recession in China/Europe.

Do you have a contingency plan in place?

1. How prepared am I for the next downturn?

2. What predetermined strategies should I have in place?

Uncertainty

If you always do what you’ve always done, you’ll always get what you’ve always gotten!