April 8 , 2005

Inside Veritas -
Article 1 - Why does manufacturing get all the breaks?
Article 2 - Energy Code Victory
Article 3 - Existing Market Activity
Article 4 - New Housing Activity
Article 5 - GM; Ford Problems Continue: Losing Sales & Market Share
Association News Update From Laura
Economic Update - Q1 auto sales; same story
BS: Still about Nothing in particular
Housing Industry Update
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Why does manufacturing get all the breaks?

(Note: While the Wall Street Journal finds “a perverse logic in Governor Granholm’s belief the she can create
jobs by cutting taxes on the industries that lay off workers and raising taxes on the professional services
industries that are hiring them,” we wonder why a cash strapped state (and its local units of government)
provides obstacle after obstacle for housing, “The hand that feeds it;” and gives break after break to the
“Mouth that bites it?” What follows are excerpts from a coming HQ article that tries to answer that question.)
“Since ‘95 Michigan’s lost 177,000 manufacturing jobs. During the same period, it’s gained over 29,000
construction jobs.
Or, consider: In attempts to save manufacturing jobs, our cash starved state and local governments grant tax
abatements to manufacturers, large and small, while they virtually fall to their knees with enticements. But
residential developers navigate obstacle after obstacle, just for the privilege of building infrastructure,
paying taxes on the value of the improvements, and paying fees to use the infrastructure, while creating jobs
and long term tax base for the state, county and municipality. Now a curious person may wonder, why? Well, while any answer may be speculative, it appears all too many of Michigan’s leaders are blind to the realities of our 21st century economy.
From an historical perspective, manufacturing has been the economic“blood” of the region, and the state, giving both the highest per capita income in the nation in the ‘50s and ‘60s. So, there remains a belief it’s remnants can still be the key to a Michigan renaissance.
Even today, the manufacturing jobs that remain in the Flint area pay wages that are well beyond the national norm. In fact, the U.S. Department of Labor said the average weekly manufacturing wage in the Flint area was $1,396 last year, based on five hours overtime, for an average hourly wage of $30.75.
However, there are two critical points to keep in mind: 1) Manufacturing jobs in the area have declined from 52,100 in 1990, to 21,700 in January, and; 2) New manufacturing jobs pay in the $12 to $15 per hour range.
Secondly, home building’s impact on the economy is understated. It’s jobs are perceived as less valuable than manufacturing’s, and its tax base is not as dramatic on an individual basis.
However, that’s because housing is viewed on an individual basis, not from an industry perspective. And, when we think of the manufacturing jobs, our tendency is to view their value from the historical perspective,
rather than current reality.
But when we look at housing from the industry perspective, while comparing the industry’s wages to today’s manufacturing, we get a dramatically different view.
To illustrate these points, look at the record of the local “Growth Alliance,” the area’s primary economic development agency, which is funded, primarily, by local units of government (many of the same who create housing’s obstacles), and lauded by the press. Over the past two years, the“alliance” claims to have “helped” bring the Flint area 361 (projected)
jobs (bringing the total two year loss to just 3,000 jobs), and $27.9 million in investment. Non-rental housing, on the other hand, brought in $978 million in investment, and it’s growth over the period added the equivalent of 500 jobs. And, the total wages of the projected new manufacturing jobs are in the $9.7 million range. Housing’s? The $19.4 million range.
But, what’s more significant, is housing’s $12.2 million in (annual) property taxes to the state and municipalities that encourage manufacturing while discouraging housing. Under the premise there were no abatements granted, the total property tax take from the manufacturing efforts brought in some $300,000.

(Note: The article (in full) also includes a breakdown of the 166 jobs“directly” created by the construction of 100 single family homes and speaks to the 84 additional jobs created from the “Ripple Effect” of the wages, taxes and owners’ income. Average wage on those “direct” jobs is $38,940, well above the average wage of 21st Century manufacturing.)

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Energy Code Victory

As most of you are aware, the industry celebrated a major victory on February 24th, when Ingham County
Circuit Judge Joyce Draganchuk ruled in favor of the Michign Association of Home Builders’ motion, granting
an injunction against the state, thereby preventing the enforcement of the new energy code. When new
information on the situation is available, we’ll immediately post it in Veritas Update.

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Existing Market Activity

When you look at the chart to the right, it almost appears like existing home sales have been weak since November. Of course, that’s merely an illusion because of the exceptional rate of sales’ activity that just won’t quit. In fact, when
the realtors report a “drop” in home sales (as they did last month), data recorded his still at historically high levels.
Beginning last month, realtors began reporting with their new methodology that includes condos and, as you can see, sales remain well above the 6.5 million unit level. In fact, even with the new revisions, one has to go back more than a year
for sales below the 6 million unit level.
While the rate of sales fell in February, the numbers were off just 0.4%, at 6.79 million. And, while they report of the market “cooling,” in reality, it seems as hot as ever.
What we can find notable in the February report is that the median price was at $191,000, up 11% from last February when it stood at $172,000. The fascinating point to this is that we’re talking about all resales, yet a year ago, the single family “only” price was at $168,100.

Regarding state & local: It appears there’s a glitch in Michigan Real estate data for the two month period, as it shows year to date sales up 9% locally, but the average price down “52%” at “$60,061,” a level we find somewhat hard to believe ... below we have the year end data (‘02-04).

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New Housing Activity

Sales of new single-family homes shook off a weather-related downturn in January as the February sales pace increased 9.4 percent to a seasonally adjusted annual rate of 1.226 million units, the Commerce Department reported.
The upturn was of little surprise, since the NAHB builder survey indicated that they were solidly optimistic about the coming months, and the Commerce Department figures reinforced that optimism. Or, as NAHB Chief Economist David
Seiders noted, “We expected a late-winter rebound as demand still outstrips supply in many areas.
Sales were up in all regions for the month. The sales pace in the Northeast increased 20.3 percent and was up in the Midwest by 9.9 percent. Sales in the South rose by 9.0 percent, and in the West climbed by 7.4 percent.
The report came on the heels of the housing starts’ report, as single-family housing starts set a new all-time record and multifamily construction was buoyed by the condominium market.
Total housing starts increased by 0.5 percent to a seasonally adjusted annual rate of 2.195 million, setting a new 21-year-record for the second month in a row, the U.S. Commerce Department reported today. The February pace of activity
was 15.8 percent above a year ago.
Although we never put a lot of faith in the reports for the first 2 months of any year, as they’re often distorted by weather, or other variables like changes in fees or codes at the beginning of the year, the early data are so much in line with builder sentiment and recent months’ activity, that it does present a sense of optimism.
So, we’ll be anxiously awaiting the 1st quarter data that will be coming out in the middle of the month.
Look for updates on the web at www.bamfhome.com/.
Local/Regional
Again, we won’t put too much faith in the early returns, particularly since uncertainty over the energy code may have had an extremely dramatic impact on February permits. However, the Housing Consultants’ report’s data had Southeast
Michigan’s single family and condo activity up 13.8% above the two month period of ‘04, while Genesee Co experienced the biggest rise of all (60%), suggesting Flint area builders were on the ball, protecting themselves against the possible
code change.

GM; Ford Problems Continue: Losing Sales & Market Share

Earlier this week we came across an article we wrote in July ‘02, regarding auto market share, noting: “Toyota continued to close in on Chrysler, narrowing the gap to 4.3 points. The gap last June stood at 4.7 points.” That note caught our eye again because late last month Toyota announced it would likely add 2 more assembly plants in North America by the end of this decade.
The announcement was significant as it would likely mean an additional 9,000 auto jobs. But, it was also significant because of the Japanese auto maker’s continuing rise in the U.S. market. In fact, Toyota’s become SO American its actually active in NASCAR’s truck series (and has even recruited former star NASCAR driver Darrell Waltrip to promote its trucks).
Which takes us back to the July ‘02 article. At the time, Toyota had recently broken the 10% market share barrier, and held 10.4% of the U.S. market during the first half of the year. Well, as is obvious from the chart to the left, its share has continued to grow, at roughly a point per year, since that time.
But what’s also notable is, despite a further closing of the gap between it and Chrysler, the latter’s market share has not only held, but has risen since it was at 15% nearly three years ago. Instead, Toyota (along with Nissan) have been taking their share from GM and Ford in- stead.
While our nation’s two largest vehicle builders have lost roughly 5% of the U.S market from ‘02 to ‘04, and are continuing in that direction for the first 2 months of this year, Toyota and Nissan continue to pick up the slack.
While General Motors expected to get nearly a third of the market after‘02, it’s running at barely a quarter of the market in ‘05. And Ford, which expected to be around 24%, is struggling to get to 20%.
And, while the two saw their total sales decline last year, Toyota sales were up 10.4%; Nissan up 24.1%. So, while GM and Ford recently announced cuts in 1st and 2nd quarter production, Toyota’s talking about adding U.S. capacity.
Unfortunately, it’s highly unlikely that new capacity will come to Michigan, explaining why auto sector manufacturing jobs are up since 2000, while the state's manufacturing jobs are down 200,000.

Beyond Seinfeld: It’s still about "Nothing" in particular

"Forbes" hits Castro where it really hurts!

Fidel Castro’s so furious with “Forbes,” we immediately thought Steve (Forbes) was planning to run for President of Cuba (after all, Cubans would probably welcome a Flat tax). But Fidel has a much bigger issue with the publisher of the family’s
magazine.
Castro’s problem? Forbes listed him on its “world’s richest people” list, with a net worth of “$550 million.” What may be more notable, is that “El Presidente” experienced a whopping $400 million growth in his net worth over the past year,
which isn’t bad for the last remaining big name, 20th Century “Commie.”
Said Castro of his rating, “they have committed infamy. Do they think I am one of those millionaires, those thieves and plunderers the empire has suckled and protected?”
While some of ‘04’s $400 million probably came from shrewd investments, most of it likely came from the sale of frozen embryos by the mothers of Olympic pitchers, as hundreds of millions in deposits to Cuba’s Banco Nationalle have been traced to George Steinbrenner’s VISA debit card!

NASCAR Steroids? Will congress investigate?

While congress turned its attention from Social Security and Deficits to Home Run hitters and Terri Shiavo, a new crisis was rearing its ugly head that threatens the moral fabric of the nation: NASCAR Nextel Cup teams were being fined, and crew chiefs suspended, due to “performance enhancing rules violations,” the equivalent of automotive steroids.
Said Chad Knaus, Jimmy Johnson’s suspended crew chief (the suspension was ultimately reversed on appeal), “If I’m going to get fined and penalized for being creative, then that’s just part of it. Besides, the other guys are cheatin’ more than we are.”
Now we don’t know if “other guys are cheatin’ more,” but the photos above clearly show somethings rotten in Carolina, and it needs D.C’s. immediate attention.

“Seinfeld” Brief:

Irony Defined: A rally, by the Labor Council of Greater Flint and Lansing at the site of the future Wal-Mart in Grand Blanc Thursday evening: Now, does anyone remember a “labor” brouhaha over Wal-Mart in Burton or Flint Township, two supposed “labor” communities?

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Association News and Events by Laura

New Members' Applications Received Stonebrook Builders LLC Robert Walker Sponsor: Barry Simon T. Nichols Enterprise LLC Tim Nichols Sponsor: Kathy White RJS Carpentry Rick Schultz Sponsor: Tim Glavin Welcome New Members !!

Inspector’s Night For the first time since ‘01, the association is hosting an evening to honor the local Building Officials, a group that’s, historically, been exceptionally supportive of our industry. We urge all our members, particularly builders, to make sure they attend on Wednesday, April 20th. And, while we’ve sent special invitations to each Official, we are asking builders to formally invite the inspectors they deal with on a normal basis to attend. The evening, at Bonaparte’s, will begin with cocktails & hors d’oeuvre (extended) hour (6 p.m. to 7:20), and will include a short business meeting beginning at 7:30. However, the primary purpose of the evening is to get together with our honored guests, in a mostly informal setting. Please join us (along with our sponsor Siding World) ... and, we ask that you let us know if you can make: Please RSVP by noon Thursday, April 14th). Special Note: Over the period of uncertainty over the energy code, we the support we received on our position by a large number of local “Officials” was heartwarming. I’d also like to point out the housing data showing the local area up 59.9% over ‘04. The only rationale for so high an increase is that local builders were aware of the potential of the new code going into effect. As much as we stressed the situation, so did all the other associations ... which give credence to the belief that our local officials were helpful in explaining the situation to local builders: Parade of Homes: We ended up with 46 entries in the May 7 - 22 event, and even had 3 on the “waiting list” if any builder were to pull out. So, we’ve got the biggest event since spring ‘99. Obviously the larger than normal numbers mean we’ll have another exceptional promotion, which will, in all likelihood, include Detroit media. The homes are well scattered around the county, with heaviest participation in the Grand Blanc area, with six to eight in the Davison, Fenton/Linden, Flushing and Swartz Creek areas. Look for the TV ads and Billboards right around the first of May .. Newspaper will be evident by Wednesday, the 4th —- and Housing Quarterly’s 96 pages should be in the mail by May 2nd. As usual, the homes in this spring’s event extend from affordable, to several in the half million (plus) range. What’s particularly notable is that we’re seeing the opening of seven new subdivisions. We also point out two notable features: the use of Granite in kitchens, and living space in basements, are extensive in this year’s event.

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Economic Update: Q1 auto sales; same story


It was hardly a joke when March auto sales were released on April 1st, showing GM and Ford were experiencing a continuation of declining sales and market share. It was, instead, a scenario that seems to be played out on
the first of ANY month, April or otherwise.
While total car and light truck sales are down a mild 0.4% for the first quarter in comparison to ‘04’s three months, we find that “U.S.” companies are losing sales, and market share, in big chunks. Both (Ford/GM) have experienced 5.2% declining sales, as their combined market share has fallen to 45.2%, down a shocking 4.6%.
Ironically, the other member of the Big 3, the German/American hybrid Daimler Chrysler, improved its sales (4.2%) and market share (0.7%). Two years ago, Chrysler was in decline and in danger of falling out of the “Big 3,” in the near future. Now, though it’s still losing market share to Toyota, it’s growth will likely prolong its membership.
At the other extreme (from Ford & GM) we find Toyota and Nissan, with 9.1% and 11.5% sales increases for the quarter, and a combined 1.8% increase in market share. Japan’s other major auto producer, Honda, continued with relatively flat sales for the year, though it’s March sales were up dramatically, likely pushed by extremely competitive pricing on its SUVs.
In comparison, the combined market share of America’s Big 3” was off 1.5%, to 60.4%; Japan’s was at 27.7%, up 1.7% for the quarter.
However, Japan’s inroads weren’t the highest. Korea’s Hyundai experienced an increased volume of 13.3%, taking its share of the U.S. Market to 2.6%, an 8.3% rise above ‘03 and ‘04 levels.

Manufacturing’s “Growth” continues

No "update" would be complete without the manufacturing report of the Institute for Supply Management (ISM)
which found, for the 22nd consecutive month, the nation’s manufacturing sector continues its expansion. However, what we find notable in the report is that its Manufacturing employment index, though continuing its expansion
for the 17th consecutive month, slowed 4.1% in March.
What we find more troubling, however, is that 17 months ago, U.S. Manufacturing employment stood at 14.315 million, while last month’s estimate by the Bureau of Labor Statistics was at 14.314 million. The ISM says that, “an employment index above 48.5% is generally consistent with an increase in the Bureau of Labor Statistics data on employment.” Well, the index has been above 50 for seventeen months!


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Housing Activity Update:

Housing/Business Briefs: Mich. Jobs; Granholm v WSJ; & more

In mid January we posted Michigan’s new “Jobs’ Milestone” on the web, noting that November (‘04) marked
the first time in history that more Michiganians had jobs in government than in manufacturing (and, wondered
how the traditional media failed to pick up on this earthshaking news).
Well, the Labor report for January had also had government back ahead, and the preliminary February report
has the two in a near “dead heat.” We’re basing this on seasonally adjusted numbers, but when we look at
“actual” employment, we find that government’s beaten manufacturing in each month since October, by an
average of 12,200 workers per month. And, it’s quite obvious that (with auto layoffs & all) manufacturing won’t
surpass government in employment until schools close in June.
So, as each month passes, it’s becoming more obvious that Michigan is a “government (not manufacturing)
state, which makes our next item more important:

The CEO of the state’s largest employer got in a sparring match with the Wall Street Journal after an editorial questioning if Ms. Granholm had hired (French President) Jacques Chirac as her new economic adviser?”
After noting Michigan’s precarious position as ranking “dead last in new jobs, and near the bottom in income growth,” the WSJ called the Governor’s new taxing “scheme” one that “looks a lot like the the industrial policy model of Old Europe, where economically omniscient governments try to pick winners and losers - and usually make a mess of it.”
The editorial went on to explain that the Granholm plan would “give breaks to Michigan’s Big three and other heavy manufacturers, while shifting the burden to” nearly every other business in the state. While she would cut the SBT and provide a personal property tax credit to manufacturers, the editorial continued, her plan “triples the tax on profits, doubles insurance taxes and would effectively raise property tax assessments on commercial real estate.”
What we find most notable about the WSJ’s opinion follows: “there’s a perverse logic in Ms. Granholm’s belief that her plan will create new jobs by cutting taxes on the industries that are laying off workers and raising taxes on professional service industries that are actually hiring them.”
In a response a week later, the Governor took “great exception to the assertion that we’re a high tax state,” calling it as “French-fried as its assertion that Jacques Chirac is ringing in on our economic policy.” Granholm then defended her plan as “designed to retain jobs and attract investment” to create new jobs. And, she claimed the writers “missed the boat” when it comes to “understanding Michigan’s dynamic economy, not only in autos but in furniture, pharmaceuticals & food products.” Of course, that was before ... Steelcase announced it was cutting off production in Michigan.

Things didn’t get much better the following week when the Free Press opened with a front page column titled “State at risk of economic devastation.”
Written by the Freep’s Tom Walsh, it focused on two studies in progress. One by the “Brookings’ Institute” describes the “Rust Belt” region as an“economic giant, precariously balanced, with one foot still planted in a waning industrial era and another striding the emerging global knowledge economy.” If we miss the transition from era to era, our future is “hollowing cities, declining population, closing plant doors, depopulated rural communities - a backwater in the world economy.”
The other, called the “Michigan Road-map project,” is led by former U-M President James Duderstadt, and appears “poised to present a bleak assessment of the state’s outlook, with harsh words for Michigan policymakers,” according to Walsh. It’s preliminary draft begins,“Michigan’s old manufacturing economy is dying, slowly but surely, putting
at risk the welfare of millions of citizens in our state.” It further notes that the state has been in denial, assuming our factory-based manufacturing economy would be prosperous indefinitely.”
Which, takes us back to the editorial by the Wall Street Journal’s reference to “Chirac” and “Old Europe” industrial policy ... Et tu, Dr. Duderstadt?


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