The Future's So Bright (I'll Have to Buy Nails)

New home construction

The Future's So Bright (I'll Have to Buy Nails)
| published August 20, 2014 |

By Thursday Review staff


The mood of the post-Great Recession economy is fickle, it seems. One day we’re told things look bright, and the next, things might be taking a dive.

Post-recession shrinkage and constriction has affected scores of retailers, especially those caught between the high-end operators and the low-cost stores. This has put the squeeze on JC Penney, Sears, Kmart, Kohl’s, Marshall’s, and others. Early this year Radio Shack announced it would be forced to close more than 1000 stores. In February, JC Penney conceded that it would close 33 stores and lay off hundreds. Retail giant Target has suffered mightily since its massive data breach last year, and it released new numbers on Wednesday revealing that its second-quarter earnings fell 61.7 percent, possibly its worst quarter since the height of the Great Recession.

But real estate and construction has been on a wobbly roller-coaster for 18 months—up one period, down the next. Housing had its best comeback last year in what appeared to be a robust rebound from the mortgage meltdown, then, slowed toward the end of 2013. The numbers have lurched up, then down, ever since, with all the usual ripple effects into other areas of the economy.

For example: just months ago we reported that Home Depot was suffering from its worst run of slow sales in years. A harsh winter stymied walk-in sales as well as construction and contractor work, and spring came late—meaning that the usual late February and early-March increase did not arrive as expected. Then, when the weather finally improved, in late March, sales were still sluggish. So it was for many retailers—some of them mired in poor sales anyway, but seeing traffic further depressed by the severity of a record-breaking winter. Worries about oil prices, especially in the context of violence in the Ukraine, Iraq and the wider Middle East, caused several min-stampedes and drove stocks lower and consumer confidence into shaky territory.

But now, home construction—generally deemed an important indicator of economic strength—appears to be regaining some of last year’s momentum. And this is good news for any retail and wholesale operation geared toward housing and home improvement. Now Home Depot has had a better-than-projected quarter. Better still, some middle-tier retailers have grabbed the coattails as well, including Marshall’s and T.J. Maxx.

Home Depot’s rebound is significant for its indications of home and construction-related activity. Home Depot reported that its quarterly sales rose by more than 14 percent, far better than what analysts had predicted, and well ahead of its own projections for late spring and early summer. Its sales figures also reveal growth in the two streams of activity: consumers buying home improvement materials to enhance existing homes, which adds value and demonstrates confidence by Main Street; and contractor and subcontractor activity, much of it in lumber, plumbing, electrical and insulation—a powerful indicator that builders are busy completing construction. Coupled with early signs that requests for building permits are again on the rise, Wall Street has reacted positively—erasing, in part at least, some of the lost ground from July’s late selloff (Wall Street had its worst day since February in the closing hours of July when the Dow fell 317 points).

But some economists and business analysts are still nervous about the intentions of Fed chairwoman Janet Yellen. The Fed is considering tweaking interest rates in order to withdraw from its longstanding economic stimulus program.

Home Depot stock value rose on the news of its surprise improvement this week. Lowe’s, the other major home improvement retailer, is expected to release its quarterly financial data this month also. Lowe’s had not suffered as much as Home Depot during the severe winter, though like most retailers it saw sales drop.

Related Thursday Review articles:

New Home Sales Stuck in Recession?; Thursday Review staff; Thursday Review; July 24, 2014.

Is This Recession Over? Yes, No, Maybe?; Thursday Review staff; Thursday Review; June 17, 2014.

Oil Prices May Hamper Confidence; Thursday Review staff; Thursday Review; June 24, 2014.