Veritas

In what’s becoming an all too familiar occurrence, the Detroit News’ Sunday edition (6/4/00) front page took another shot at builders and developers, with the headline above leading to a story based on a “four month investigation of more than 7,000 pages of campaign finance records.” According to the records, “local politicians raised $2.1 million for last year’s campaigns in more than 40 Metro communities,” while real estate and construction interests donated $226,623 (11% of the total), the largest amount of any special interest group.
The article, written by Gordon Trowbridge and Jodi Upton (the latter has been responsible for several “sprawl” articles), was obviously designed to lead the reader to the conclusion that builders and developers are greasing the hands of local politicians for favorable votes on projects brought to their respective communities. And, they were easily able to find corroboration from the usual anti-development suspects.
Noting that “most development firms declined the News’ requests for interviews,” their primary quotes on the subject came from the likes of Bill Rustem (who loves distortions relating to development) noting that “the rubber hits the road at the local level, making decisions about where development should and should not occur.” And they were able to find Keith Schneider of the Michigan Land Use Institute who said “a $500 contribution made at the strategic moment can have significant consequences,” then claimed “the development community in Michigan is receiving billions in benefits for thousands of investments (contributions).
Unfortunately, Ms. Upton (and colleague) once again shows her inability to understand an issue completely, and merely look at the surface telling no more than her usual sources wish to project.

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Business Briefs: Construction pay is falling? ...

Business Week called it a “puzzle.” Despite the fact that housing starts have been on the “high road” for years while the industry has called “labor shortages” its biggest problem for the past three to four years, “the relative pay of construction workers has been falling for two decades.”
The magazine was referring to a report from Elliot Eisenberg of NAHB that notes that construction workers, on the average, earned 20% more than the median weekly wage in 1983 (when home building was beginning to pull the nation out of its worst recession since WWII). However, last year, with the economy in a nine year expansion and housing starts soared, the average construction worker earned only 3% more than the national median. And, the decline is evident in all fields, from electrical and plumbing to painting and drywall.
Although some think the shift toward more construction in less unionized states is the reason, Eisenberg suggests the slippage in relative wages reflects a “drop in the skill levels of workers entering the construction field.”
Actually, it’s also likely that, in this time of full employment, individuals don’t stay in construction long enough to gain a higher pay level, since small subcontractors can’t compete with larger companies that need workers.

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Why Developers Contribute in Local Races

All too often during the past couple of years, the front page of Veritas told of a feature article in the previous Sunday’s joint edition of the Detroit Newspaper Association. Usually they’ve related to articles on Sprawl, which totally distorted facts. This past Sunday was different, because the News’ reporters displayed their utter incompetence, and total ignorance, relating to campaign support and the land development process, along with social and political realities.
The Detroit News “special report” began with the front page headline “How builders buy access, influence in local politics.” It subsequently told how the construction/real estate industries contributed nearly 11% of the $2.1 million donated to suburban political campaigns in 1999, and suggested that the donations were “buying influence” in attempts to profit in the future, or as rewards for past support.
Now, here’s the reality of the situation. First of all, builders and developers, by the nature of their businesses, have considerable contact with local government officials. Much of that contact comes from working out details of developments to fit within planning guidelines and eliminating objections to individual projects.
During the process of approval, reason usually prevails, as developers and officials work together, gaining both familiarity and trust.
Now, when a politician faces an election, who does he turn to for funding? Obviously they turn to friends, family, business associates and acquaintances ... in other words, people they know. And, when an individual supports a candidate he or she knows, there’s no reason to believe there are the proverbial “strings attached.”
I’ve been at this business for 23 years and I’ve never seen access or influence rise or fall due to political donations. In fact, its the previous access that merely brings about the request for donations.

Barry

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Autos in May follow Homes in April

Like home sales the previous month, car sales began to show signs of weakening in May as GM and Chrysler experienced declining activity, while Ford, though still showing an increase, saw its rate of growth slow. And, interest rates are getting the blame.
Still, sales are running at an exceptional pace industry wide, as import sales are up dramatically for the first five months of the year.
General Motors sold a total of 455,868 vehicles for the month, a decline of 5.8% from May ‘99. Total car sales were down significantly as Buick and Oldsmobile experienced 18% and 25% respective declines. However, for the year it’s running approximately 5% ahead of ‘99, primarily on an 11.9% year to date rise sales of trucks.
DaimlerChrysler saw sales plunge 18% for the month, and immediately announced a new incentive program to spur sales (if you saw Sunday’s Detroit classifieds, they’re virtually giving trucks and SUVs away on employee pre-paid leases).
Ford experienced a small gain for the month, and is running 7.6% ahead of ‘99’s five month period, due to car sales running nearly 15% above last year’s level.
However, a quote from CNN regarding “Ford’s” sales tells us a lot about the international flavor of the American auto industry. Notes CNN: Ford attributes the increase to “new models in the Jaguar, Lincoln and Volvo lines.”
In all, the market share for American lines only fell from 70.3% for 1999, to 67.4% for the January through May period of 2000. GM saw its share decline from 29.2% to 28.5% during the period.

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It’s still about "Nothing" in particular

It's really about nothing in this issue. Catch you next time........

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Association News and Events
Website hits; Parade of Homes; BID-PAC; etc

As we noted in this column in the May 18th issue, the association web site at www.bamfhome.com, took more than 600 hits through the first weekend of the Parade of Homes. What was most fascinating about the activity was the fact that we’d only taken around 300 hits since last October.
Well, by the time the Parade ended on May 28th, we had taken an additional 300+ hits and ultimately had 909 visits to the site by the time May came to an end.
The experience during the month of May showed clearly that a local web site is viable in the Flint area, and can extend a number of promotional opportunities for association members.

Through discussions with several participating builders it’s evident that the ‘00 Spring Parade of Homes was truly a tremendous success as reports of traffic and sales suggest the local market remains solid in its thirteenth year of expansion ... that’s right; since ‘88 the local new housing market has been on an upswing.
As we find with every Parade, the largest, most luxurious homes, drew thousands, as individuals from around the region looking for ideas and entertainment, joined serious home buyers, in packing the models on weekend afternoons. However, what was surprising were the hundreds viewing the smaller homes, setting up appointments with builders and, even signing purchase agreements. Nearly everyone we talked with noted the “seriousness” of the public during this event, and referred to the fact that neither higher interest rates or building costs seemed to have any negative affect.
Also, don’t forget that the June membership meeting will feature Parade award winners.

Important Notice Regarding the FALL PARADE!
Obviously, we just finished the Spring event and, from a normal perspective, wouldn’t be mailing on the Fall Parade until July ... However, we’re facing a critical problem this coming fall regarding the availability of media, and will have to buy early (particularly TV and billboard space), since we will receive record competition from political advertising. This fall we’ll be in the center of the “battleground” for two of the most hotly contested Congressional races in the nation, plus Bush/Gore, School Vouchers and a possible referendum on cities’ “home rule.” The problem is, political advertising takes precedence over non political ads, which all too frequently, get bumped.
However, the earlier we reserve add space, the less likely we’ll get bumped ... so, we may be buying TV and billboards as early as this month ... that’s why we’re asking anyone planning on entering the fall event (Oct. 7 through 22) to let us know of your plans immediately!
And, with Political Advertising on the brain, we need to discuss our local committee, the Building Industry Development Political Action Committee (BID-PAC). We haven’t collected any funds since 1998, and we’re not asking for any large amounts today ... What are we asking for? $26 (50 cents per week) from each member and affiliate on the Veritas mailing list, along with an additional $10 per home built in 1999 (up to $100) for home builders. We will begin collecting now ...
Send personal checks only to BID-PAC; P.O. Box 940; Grand Blanc; 48439.
Listing of contributors will begin in the July 4th issue.

Again! The MAHB Summer convention is set for July 19th through 22nd at the Grand Traverse Resort, and registration for the event is just $99. Look in your May and June issues of Michigan Builder for your registration form, or call the Association....603-2200.

Economic Update: So, the economy’s slowing, you say?

In this “bizarro world” known for its “New Economy,” what could be better news than a report that the unemployment rate rose by 0.2%? Apparently nothing as Wall Street “optimists” look for a reason to celebrate, so last Friday’s report continued a stock and bond rally that saw the DOW industrials gain 400+ points for the week, NASDAQ gain 600+, and 10 year bond yields fall by .15%.
For those who believe the economy’s growing too fast, May 26 through June 2nd was a banner week for economic reports. Friday’s release that U.S. companies actually shed 116,000 jobs in May, came on the heels of slower housing sales (see Housing Update ), slower manufacturing growth, a drop in orders for durable goods, construction spending experienced its biggest decline in a year, and, even, a 0.1% decline in the index of leading economic indicators.
By the time the employment report was released, there were actually analysts who proclaimed that another rate increase was no longer assured when the Federal Reserve meets in June.
However, despite the jubilation, it’s probably way too early to even suggest that the economy’s beginning to cool. There’s a number of reasons for this caution (?), but most significant is the fact that Consumer Confidence, which had basically been down all year, took a big jump in May. And, as we have written so many times over the past 111 months, the American consumer is responsible for roughly 2/3 of all U.S. economic activity.
Consumer optimism, which measure 144.7 in January, had fallen to the 137 range in March and April, then took a surprisingly large leap above 144 in May. Of course, the rebound in consumer confidence (which was even recognizable locally during the Parade), likely in response to the 3.9% unemployment rate reported at the start of May won’t show up in sales reports until later this month.

Employment
The Labor Department’s report said the economy created 231000 jobs last month. However, all of the job gains came from government hiring. In fact, excluding the 357,000 workers hired for the census last month, U.S. employers actually got rid of 116,000 jobs.
But, perhaps most notable in the employment report was the mild increase in average hourly wages, which were up just 1 cent to $13.65 per hour.
Problem: June is a month that college and high school students are graduating and moving into employment opportunities that have already been set up ... look for a big surge in employment in June.

Leading Indicators
The April decline in the index of leading economic indicators was the eighth monthly decline since early ‘98, so, it obviously doesn’t mean too much. And, since it was driven, primarily, by a decline in orders for consumer goods, its likely short lived as we approach summer.

Manufacturing
The decline in the National Association of Purchasing Management’s (NAPM) manufacturing activity index, from 54.9 in April to 53.2 in May, suggests that the rate of growth in that sector is declining. Furthermore, when we also note that manufacturing employment fell by 17,000 jobs, it seems conceivable that the sectors growth could be waning.
Most interesting about the NAPM report is its “prices paid” component, that measures the cost of production. It actually fell to 65.8% from 76% during the month.
Also, the decline of the index in May was the third consecutive month of decline. However, one must remember that any score above 50 represents growth in the manufacturing sector, and the index has remained above that level since the end of 1998.

Durable Goods Orders
Orders for long lasting items such as appliances and autos plunged 6.4% in April, their biggest drop in some eight and a half years, according to the Commerce Department. And, when the often volatile transportation sector isn’t counted, durable orders still declined 6.4%, which made it the biggest decline in nearly eleven years.
Why the gigantic slump? It primarily related to electronic goods, from appliances, to video equipment, to computers, which experienced a 20.1% decline ... and, part of the decline is based on the slump in housing sales, which likely put a big dent in the appliance business.

On the Upside:
There was a 0.7% rise in personal income in April, while spending was up just 0.4% and savings rose 0.7% ... the 2nd consecutive month savings showed a rise ... Also, the Federal Budget posted a record surplus of $159.5 billion in April ... and, finally, the 1st revision of Gross Domestic Product showed 1st growth at 5.4%, up from the original 5.2% estimate.

Housing Industry News’ Update

“New home sales fell 5.8 percent in April, more than twice the slide that had been expected, as higher mortgage rates put the brakes on home buying.” So read the first paragraph of a CNN report noting that new homes sales experienced their biggest drop since last September as financing rates have risen 1.5% over the past twelve months. But is there really a significant downturn?
Last Wednesday the Department of Commerce reported that sales fell to a seasonally adjusted rate of 909,000 units the previous month, a large drop from the March level of 965,000. However, the rate was still above 1999’s record setting level of 907,000, and only 2.2% below last April’s rate when 30 year fixed rates were at 6.9%.
Data for existing home sales also showed a substantial decline, according to the National Association of Realtors. The real estate trade group said that April sales fell 6.2% from their March rate of 5.2 million units. Furthermore, the April rate of 4.88 million was well below 1999’s year end level of just under 5.2 million.
What’s interesting about the decline in both, new and existing, sales activity is the placing of the blame on interest rates, despite the fact that 30 year mortgage rates actually fell in April. What will be more significant will be the May reports, which will reflect the large jump in rates, which basically climbed a half a point since the end of April. May will tell us a lot as we weigh the following factors:
· May’s soaring Consumer Confidence data could suggest a strong pick-up in housing demand (evident locally during the Parade);
· Rising rates may make prospective buyers jump before they go higher;
· Look at May’s existing home median prices which may indicate that higher rates are making sellers jittery, so they’re accepting lower bids;
The point is, from an historical perspective, housing leads the nation out of recession, then tapers off well before the economy descends ... now, 111 months into the expansion, housing sales remain near cyclical highs, and may rise higher.

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