Restyling & Truck Accessories - January '15

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Page 45 of 48 January 2015 | Restyling & tRuck AccessoRies 43 More Homes Housing is a big driver of jobs and of the economy—and business owners will be looking for a rebound in housing to help bolster 2015. Some improvement is indeed forecast: Housing starts are ex- pected to ramp up to 1.5 million units in 2015, after coming in at the 1.1 million unit mark in 2014. While those numbers represent a gradual improvement over the results of recent years, they are still below what's needed for a complete economic rebound. Koropeckyj points out that housing starts averaged 1.7 mil- lion units prior to the boom years of the middle of the last decade, and peaked at 2.1 million units in 2005. "There are many constraints on homebuilders' will- ingness and ability to ramp up quickly," explains Koropeckyj. "These include the availability of construction and land development loans, labor shortages, and a lack of manufacturing capacity for certain building materials." As a result of these capacity constraints, says Koro- peckyj, the pace of housing starts could fall short of expectations for 2015. Large Employers If the economy will continue its long steady climb back from the 2008 reces- sion, large corporations will have to play a key role—not only in hiring, but also in investment. And here the environment seems most favorable. Corporate profits are expected to increase by 12 percent in 2015 following an actual decline of 0.4 percent in 2014 caused by an extremely weak first quarter. While corporations— like consumers—have been reluctant to spend on investment and hiring, they are poised for growth in both areas, according to Koropeckyj. A number of factors suggest that businesses will invest more heavily in infrastructure and expansion during the coming 12 months. "Record profitability, rising utilization and falling vacancy rates, extraordinarily low borrowing costs, and increasing access to credit are lifting investment in equipment, software and buildings," says Koropeckyj. What's true for large cor- porations seems to hold as well for their smaller siblings. "At smaller companies, growth has been slow but steady," says Walter Simson, principal of Chatham, N.J.-based Ventor Consulting. "Now businesses are showing tentative willing- ness to expand, as opposed to three or five years ago, when they were afraid banks might unexpectedly call in their loans. Retailers, for their part, are fairly busy. They are building additional stores, hiring more people and increasing hours. I see a continuation of that trend. Reports from the field corroborate an improving outlook for business. "Sales continue to see a positive trend in the near future for manufacturers and backlogs have recovered with new orders either stable or increasing," says Tom Palisin, executive director of The Manufacturers' Association, a York, Pa.- based regional employers' organization with more than 350 member companies. "With the continued positive growth of the U.S. GDP, the domestic markets for manufacturers will continue to see growth opportunities." Looming Clouds Unanticipated events may affect the economic forecast. Interest rates, for example, may rise after many years when the Federal Reserve kept them low to help spur the economy. In the best of worlds, that might actually stimulate the economy. "There might be an advantage to the Fed's letting interest rates rise or at least to signaling they might move that direction," says Simson. "It might incite the animal spirits of consumers who jump to get new homes in the belief interest rates would go up." Of course, too high of a spike in inter- est rates would have a negative effect on housing. "The biggest threat to the outlook would be a repeat of what went wrong in 2014," Hoyt says. "That would be if housing markets do not gather momentum and we do not get the antici- pated construction and jobs." More risks abound. Consider another meltdown in the fi- nancial sector: "I am not convinced that the banking system is any better today than in 2008," says Simson. "That could be a danger." Yet the biggest risk, says Simson, might be that one of the world's many severe problems—The Middle East, terrorist activity, the devalued Russian ruble, the softening economy in Europe, or the spread of Ebola—might blow up and create the next economic disruption. "It's a dangerous world," he adds. "The risk is that something bad happens that makes people stay home and watch TV rather than go off and do business. You have to wake up every day and pray that does not happen." Tea Leaves In the early months of 2015, market watchers can get a bead on where the economy is heading by watching for some key statistics in labor and housing. "Among the most important trends to watch will be how much labor market slack is absorbed and how quickly," Koropeckyj says. "Will the labor market tighten? And will that affect wages in a way that encourages consumers to open their wallets at retail stores?" A second factor is the willingness of banks to lend. "Improved mortgage credit avail- ability will be the key in enabling the housing market to take off," she says. And keep an eye on the employment numbers. "People will be looking for continued job growth in early 2015," says Simson. "If they see it they will think things are going well. If job growth is not there people will be wor- ried that something is amiss." Looming Clouds January 2015 | Restyling & tRuck AccessoRies 43

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