Economic Expert Breaks Down the Economy for the Industry

November 16th, 2012 by Editor

In an effort to educate its customers on a variety of issues, Chelsea Building Products offered its first webinar last week in which Dr. Peter Linneman, principal at Linneman Associates, gave the door and window members in attendance an informative look at the economy.

“In terms of the gross domestic product (GDP) we have recovered from the recession and our GDP is higher than it was four and a half years ago,” he said. “That is the good news but we have 3.5 percent more population so per capita we are down 1.5 percent, and we are growing at 2 percent. If we don’t make up the gap it will be the first time in history that we haven’t.” Closing that gap will require a few years of 5-, 6- and 7 percent growth, he said.

He also added that it is easy to be pessimistic but when you break down various numbers, there is more good news than bad, and of course there are regional differences.

“If you translate these numbers, New York City and Washington, D.C., have gained back all the jobs they lost but others are really stumbling, including Southern California,” said Linneman.

Some of that good news includes the fact that “we are exporting more than any time in history and this is one of the real drivers of recovery,” he said. “We make stuff people want and we don’t do a lot to produce it. It’s a great place to make stuff but not a great place to make stuff with low value add.”

He added however, that people are hoarding their cash based on uncertainty and waiting for opportunities … “Everyone wants cash in case we have another financial crisis, for example, as a result of the turmoil rolling out of Europe. Eventually this cash will come out and when it does it will stimulate a lot of growth.”

One of the best news for the production sector is that Linneman says natural gas prices are going to stay low for a very long time especially in Chicago and the East. We will however see dramatic increases in petroleum prices over the next several years.

When it comes to another positive item, Linneman has difficulty explaining why Fed rates are so low, saying no one really knows.

“The only reason we haven’t had rapid inflation is because banks are sitting on the money,” he said. “They are earning interest on money sitting at the Fed.”

Household wealth has also made a notable recovery up to about $520,000. “It’s making a rebound by people paying down their debt and this will feed consumer confidence and slowly feed economic growth,” he said.

In the past several years, single-family housing was the worst sector but that is finally changing: moving forward it will be the best.

“Only in the last eight months have you seen this notable upstart,” he said. “We are at 420,000 and we went all the way up to 550,000—a 25 percent increase. The level we are at now is below previous recessionary recoveries. We could double and still not be up to the 40 year low.

We are in a period of four to five years of under production.”

He also gave attendees something to look forward to. “When buying a home, you have to have the 20-percent down payment. People need four to six years to accumulate and they are in the third, fourth or fifth year of that so we still have a little way to go. When home prices start going up people will say I better buy now before they go higher. We are two years away from a tremendous surge that will drive single family and all the industries that serve it.”

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