A new year is upon us, replete with hope, excitement and anticipation. No matter if you’re a grower, landscaper or retailer, there are many factors that will affect your business in some way in 2016. In order to help you prepare, we’ve compiled a brief overview of several of the most important issues facing the horticulture industry this year, including updates on labor, immigration, the housing market and the overall economy.
Slow spending signals caution
Consumer confidence is one way to measure economic outlook. It can be a useful tool to contrast against spending habits. The University of Michigan’s Survey Research Center has monitored consumer attitudes and expectations since 1946. The center publishes its index of consumer sentiment, along with current economic conditions and an index of consumer expectations. Survey director Richard Curtin says the surveys are designed to explore why changes in consumer attitudes and expectations occur and how these changes influence consumer spending and saving decisions.
The most recent index, published on Nov. 15, 2015, showed continued strength in consumer sentiment over the past two months. This strength has been due to gains among middle and lower income households, while confidence retreated among households with incomes in the upper third of the distribution. The offsetting shifts were relatively small and left the overall Sentiment Index in November nearly equal to the average during the past six months (91.6).
The survey posits that the recent cross-currents in expectations are likely to reflect an ongoing pattern of offsetting adjustments to a slow-growth economy. However, the data also indicate the indelible impact that the Great Recession has had in making consumers more cautious spenders.
“The more guarded outlook of high income consumers reflects a slightly weaker outlook for their own personal finances and has prompted a greater insistence on discounted prices and low interest rates,” Curtin says. “Middle and lower income households expect somewhat larger income gains than they enjoyed in the past, but their insistence on discounts is no less than before. It is not surprising that the cross-current displayed by the domestic and global economies have and will continue to cause adjustments by consumers. These adjustments are needed for consumers to maintain their resilience, which has been crucial to steady the pace of economic growth.”
The final monthly reading for November fell to 91.3 after a midmonth reading of 93.1. It was an increase from October’s final reading of 90. This is a 2.8 percent increase over November 2014.
Consumer confidence is sensitive to the stock market. For instance, the 2015 low of 87.2 occurred after a stock market tumble in September. The 2015 high point was 96.2 in June.
To create the survey, 500 individuals are randomly selected each month from the contiguous United States (48 states plus the District of Columbia) to participate in the Surveys of Consumers. The questions asked cover three broad areas of consumer confidence: personal finances, business conditions and future buying plans.
Hope for the housing market
Although it’s not the only economic factor affecting the strength of the green industry, the state of the housing market has a direct impact on growers, retailers, landscapers and the rest of the supply chain. For example, an increase in new housing starts correlates with increased demand for landscaping services and new plants, trees and shrubs. It’s also one of the indicators of overall economic health.
Dr. Charlie Hall, Ellison Chair in International Floriculture at Texas A&M University, had this to say about the future of the housing market:
Demographics and household formation suggest housing starts will increase to around 1.5 million over the next few years. That means starts will probably increase another 40 percent or so from the October 2015 level of 1.06 million starts. Residential investment and housing starts are usually the best leading indicators for the economy, so this suggests the economy will continue to grow in 2016. It is important to remember that new home sales are more important for jobs and the economy than existing home sales. Since existing sales are existing stock, the only direct contribution to GDP is the broker’s commission. There is usually some additional spending with an existing home purchase (e.g. new furniture, etc.), but overall, the economic impact is small compared to a new home sale. So some slowing for existing home sales (if it happens) will not be a big deal for the economy.
Depite the anticipation of an upcoming major decision by the U.S. Supreme Court, the impact of immigration on the horticultural workforce at large remains considerable.
In 2014, President Obama called for expansions to what is called the Deferred Action on Childhood Arrivals program, which, according to U.S. Citizenship and Immigration Services, delays deportation measures against undocumented immigrants who came to the U.S. as children and allows for temporary work authorization. The program was supplemented with the Deferred Action on Parents of Americans program, which made similar exceptions for undocumented immigrants who reared American-born children after arrival.
The Supreme Court is expected to make a decision on the constitutional validity of these expanded executive orders at some point this year or in 2017, says Craig Regelbrugge, senior vice president of industry advocacy and research at AmericanHort.
“The best available information suggests that immigrants, both legal and illegal, comprise the vast majority of the workforce,” Regelbrugge says. “I think the deferred action programs would have helped employers in one respect in that they may have had a larger share of the workforce that actually had a legal authorization to work, but it wouldn’t have made more workers. I think the inescapable reality is that one of these days, Congress has got to deal with modernizing our immigration situation, but until they do that, it’s kind of an every-tool-in-the-toolkit [situation].”
Low gas prices: not good news for everyone
The extraction of oil and natural gas from shale has reduced the amount of oil the U.S. needs to import and is adding to the economy in the forms of jobs, investment and growth.
According to the U.S. Energy Information Administration, overall U.S. oil imports are at a 17-year low while the nation’s production rate is at a 24-year high. This is largely because of hydraulic fracturing. In fact, oil production in 2013 exceeded net imports for the first time since 1995. However, the U.S. is still importing more than 9 million barrels a day from 80 different countries.
There is a direct correlation between the price of oil and the cost of shipping goods. So for companies that ship a lot of plants on trucks across the country, falling gasoline prices are a boon. But for those companies extracting oil and natural gas, or constructing pipelines to move those commodities, cheaper prices mean either smaller profits or potential losses. If commodity prices fall too far for too long, these producers will likely stop digging and start firing. Jobs across the economic spectrum are at stake, and the banking and investment industries are other pieces of the puzzle.
Many of the companies drilling and servicing wells on shale deposits finance their operations by raising capital and taking on debt. This means that investors and banks both have money to lose if the price of oil drops to where new wells are no longer profitable and the companies dependent on drilling and service then go out of business. Between the job losses and the capital losses, a dip in oil prices can trim the growth of the U.S. economy.
Overtime: Beyond the 9- to-5
The impending changes to overtime laws may have a very significant impact on your business —or no impact at all. Craig Regelbrugge, senior vice president of industry advocacy and research at AmericanHort, says the Department of Labor’s Wage & Hour Division has proposed to substantially increase the minimum salary threshold associated with the “white collar exemption.” Essentially, the department wants to tie the minimum threshold salary to the Consumer Price Index, causing the minimum threshold to rise with inflation. Regelbrugge says the changes to the overtime laws could be made final in 2016, likely between July and November.
“For greenhouse growers who maintain their agricultural status, the ag exemption from overtime is statutory (whereas the proposed change is regulatory) so the ag exemption is unaffected,” Regelbrugge says. “But the change could impact growers who engage in activities outside the ag exemption (such as buying in and merely reselling product from others) or who have diversified businesses (e.g., retail or landscape operation).”