Briefs with industry
significance - slowing auto sales interest rate related?
For the second month in a row, sales of U.S. cars and trucks have fallen
below last year’s record level, which a Detroit News article said was “evidence
that rising interest rates have cooled off America’s red-hot automotive market.”
Despite strong discounts and lease incentives, June’s sales for U.S. companies
were down: 2.6% for Ford; 5% for GM; and 8.6% for DaimlerChrysler.
However, foreign automakers experienced impressive gains for the month, and
sales for the industry, as a whole, was only 1.4% below June ‘99’s rate. And,
for the first six months of the year, GM sales activity is actually up 3%
from 1999, while Ford set a half year record with sales up 5.5% from last
year’s pace. Only the “Chrysler” group is down for the year, off 3% (but Mercedes’
sales are up 12%.)
Two important figures stand out with the June statistics. First, despite all
the attention paid to gasoline prices, sales of “gas guzzling” SUVs were extremely
strong, even in the Midwest where gas prices are highest. And secondly, if
anyone’s watched the prices on cars (particularly SUVs), it’s quite doubtful
that interest rates are having any affect. In fact, payments are well below
levels of previous years (with the exception of imports, which actually experienced
gains).
In all, sales seem to be running ahead of last year’s record pace (16.9 million),
and could well set another record.
One negative from a local impact perspective is that GM appears to
be, once again, losing market share. After growing its share to 29.8% in the
1st half of 1999, it fell to the 28.6% range for this year’s first half.
However, on the bright side for the number one auto company is the performance
of its truck division. Truck sales are up a solid 8% for the year, with full
size pickups rising 6%. And, those full sized pickup sales are expected to
gain momentum later this year with the introduction of new 3/4 ton and one-ton
models.
The truck sales’ data is probably the best news the company could
get on Monday, considering it now appears that GM sees its future geared toward
trucks. According to a recent article in Business Week, 70% of its
new vehicle capital investment through ‘02 will go into trucks and SUVs. The
article noted that “one outcome” of the new direction will be the scrapping
of the Chevy Prizm in 2003, and replacing it with a “new Pontiac lifestyle
vehicle,” mixing the attributes of a standard car and an SUV, which will be
designed on a small car base and made in California.
For the past two years, we’ve continuously referred to stories that
express the fact that the nation has too many farmers, growing too many crops,
at a burden to the American taxpayer. Many of those stories point to the fact
that federal farm subsidies have actually grown by billion of dollars since
the Freedom to Farm Act went into effect in 1996. By 1998, subsidies
were $8.5 billion beyond their pre “Freedom” rate and, due to overabundance
causing grain prices to plummet, they rose dramatically in 1999.
Well, it looks like subsidies will climb again, by at least $1 billion, as
a report from the Agriculture Department said farmers planted more crops,
already in over-sup-ply, in 2000 than in ‘99. Corn and wheat prices fell dramatically
on the news ... but we’ll pay the loss.
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“Suburban Beauty ... Why Sprawl Works”
The led article of this issue dispels one of the major distortions about
suburban growth frequently spread by anti-sprawl activists: that, from a fiscal
perspective, new construction doesn’t pay for the additional costs it brings.
That myth is one of many I’m frequently forced to dispel by the use of economic
facts that consistently show growth as the savior of this community.
However, recently I had to question why we’re always on the defensive and
forced to continuously justify, not only what’s in the community’s
best interest, but support for the dreams of individual families as well.
Dave Robertson, 5th District Commissioner, faxed a copy of a recent article
in the Weekly Standard ... featured on its cover with the words “Three
Cheers for Sprawl.” The article was actually a review of the book Suburban
Nation, called the “most coherent and important attack on sprawl so far,”
by the “intellectual leader of the anti-sprawl cause.”
In his review, executive editor, Fred Barnes, attacked the book, not on the
economic benefits of sprawl, but on what’s really behind the anti-sprawl movement:
“To force a lifestyle and housing pattern on unwilling Americans.” Notes Barnes,
their vision is “utterly impracticle for a postindustrial nation of 270 million.”
But most of all, the review points to the absurdity of “intellectuals” trying
to herd people in a “better” direction, based on their own ideals ... perhaps
it’s time for us to go on the offensive!
Barry
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Taxation and
Finance .. by Rachor, Purman & Tucker;
Industry Payment Protection Act of 1999 Amends Miller Act
Subcontractors working on federally funded projects will be pleased to know
that the Industry Payment Protection Act of 1999 went into effect this March.
This act amends the 65 year old Miller Act, which requires that a payment
bond is secured on all federal and federally funded projects. In cases
where the prime contractor of a project defaults or wrongfully withholds payment,
the Miller Act allows subcontractors to sue for payments guaranteed by the
bond for their work. The new regulations make three significant changes to
the Miller Act.
· The Miller Act Limited the amount of the payment bond to $2.5 million
for all subcontract work on a federal project. In cases where the bond totaled
more than $2.5 million, nonpayment or partial payment of subcontractors would
occur. The new regulations require that the payment bond equal the full monetary
amount of the work performed under the contract. Ultimately, the contracting
officer holds the power to determine the amount of the payment bond.
· The Miller Act allowed prime contractors to require subcontractors to waive
their payment bond rights before starting work. The new regulations prohibit
this practice as it defeats the purpose of the Miller Act and the other goals
of the new act.
· A subcontractor must notify a prime contractor that it has taken action
under Miller Act Provisions. Previously, this notification had to be delivered
by United States Post Office registered mail. The new act updates this requirement,
allowing a subcontractor to send notification through any means that can be
verified by a third party. Therefore, notification can be sent through private
companies that provide receipts, like Federal Express or Airborne Express.
Although the Industry Payment Protection Act of ‘99 does not have any effect
before March 2000, it modernizes provisions to uphold the spirit of the Miller
Act in these changing times.
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It’s still
about "Nothing" in particular
It was easy to find the silver lining in the Flint Journal’s
front page article about the new wave of prostitutes that have come to Flint
from places out west. In case you weren’t around the weekend before last,
a message on a “hooker” oriented web site said that Flint was a great
place to work because the police normally write appearance tickets rather
than holding Prostitutes in jail. But, like so many travelogues, the site
only told part of the story.
Upon arrival at this hooker haven, many of the girls found that working
conditions and wages weren’t up to their expectations. Police noted that the
going rate on the streets has been $20, but the new arrivals were scaring
away customers with the shocking quote of $100 ... and while local girls keep
overhead low by working in cars, the new girls like the comfort of Dort Highway
motels.
Now, on the surface, this just appeared to be one more article knocking Flint
as a low class town. But wait! Hasn’t the knock on the area been high labor
costs for little work?
This clearly presents an opportunity to put aside this perception. After all,
Flint people work five times as hard for their money ... and they’re
willing to work in what competitors consider substandard conditions.
Perhaps it wasn’t too far of a reach a couple of years ago, when Michael Moore
tried to get Nike to build a plant here.
Jimmy Carter II? Back in the late ‘70s and early ‘80s the federal
government spent billions on tax incentives for energy efficient home products.
And, as a result, thousands of fly-by-night insulation and solar energy companies
overcharged millions of homeowners for virtually useless products and services
with the government sharing the expense. Then, when the incentives disappeared,
so did the most of the companies.
Now, along comes Vice President Gore, in the middle of a supposed energy
crisis, proposing tax credits for energy efficient building and upgrading,
along with a massive credit for super efficient cars, at a combined cost of
nearly $27 billion over 10 years.
Interestingly enough, the attack on the Gore plan came from a coalition of
consumer and environmental groups.
They said it: Regarding the first mapping of human DNA blueprints,
comedian Argus Hamilton noted that “in time, science can make everybody genetically
identical. The Bush-Gore race is just a preview.” And, in mocking the CBS
TV show Survivor, late night talk host Craig Kilborn announced: “This
just in—Cuban President Fidel Castro has been voted off the Island.” ... "The
Clinton administration must push OPEC to raise oil production," said
Spence Abraham's radio ad. It began running the day after Saudi Arabia
said it was raising output a half million barrels per day.
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Association News and Events
As we’ve noted in the past three issues,
the Golf Outing is full, with 144 golfers and a waiting list of six foursomes.
However, banquet tickets remain available ($30 each) and a few hole sponsorships
are still available. Again, if interested, call the office at 810-603-2200
(each sponsorship includes a contest on the sponsor’s hole ... $100
if you bring the prize; $150 if BAMF buy’s it.)
Remember, the event begins with a “Shotgun” start at 10:30 a.m. Tuesday, August
1st, at Woodfield’s Captain’s Club near Baldwin and South Saginaw
in Grand Blanc. Dinner should begin at 4:30 p.m.
Fall Promotional Events: Contracts for the Fall Parade
were mailed in late June. The first deadline for the event, July 24th, is
fast approaching. After that date, the cost of entry rises from $2,500 per
home to $2,700. Also, the final deadline for the parade is August 14th ...
The parade will open Saturday, October 7th, and run through Sunday, the 22nd.
It’s open noon to six on weekends; 4 p.m. to 7 p.m. on Thursdays and Fridays.
If you haven’t received your contract and wish to participate, please call
the association office ASAP...
Housing Quarterly advertising contracts were also mailed in
late June to previous advertisers and a number of prospective advertisers.
The first deadline for ad reservations is August 2nd, and everything must
be in by August 28th ... although we historically have more leeway with the
fall issue due to fewer parade pages, there’s still a limitation on color
ads ... so, if you want a color ad, an early response may be necessary to
guarantee your space.
General Meeting note: we would expect to be presenting Workers’ Comp
dividend checks at the 9/11/00 meeting ..will let you know for sure in next
issue.
Economic Update: Psychotic world
of economic analysis
Nerves were a bit frayed on Wall Street last Wednesday. After all, analysts
were relatively sure that the Federal Reserve would leave rates intact its
scheduled announcement would be made at approximately 2:00 p.m. But a couple
of reports during the week, existing home sales on Monday, and Durable Goods
orders that morning, were well above expectations, showing a fragility in
the perception of a slowdown. And, that fragility could give the Fed cold
feet. If so, an unanticipated rise in rates would likely bring about short
term market panic.
But, despite the two reports, and voiced concerns about the rate of economic
growth, the Fed left rates alone ... at least temporarily. But it’s the fragility
of the slowdown that deserves some focus in the bizarre world of
this New Economy, because fragile is usually a term we’d use
for concerns that a recovery, not a slowdown, lacked solidity.
Well into its unprecedented 10th year of expansion, the economy’s shown few
signs of tiring despite six Federal Reserve rate increases over the past year.
So, May’s lower retail sales and higher unemployment figures don’t create
a comfortable feeling that growth is permanently slowing.
But slowing or not, the real concern is price levels, which may not appear
to be a problem on the surface. However, there’s an underlying concern because
prices have risen on so many products which make up the price level indexes.
From the obvious like gasoline, transportation and mortgage payments, to cigarettes,
food and home maintenance, costs have risen dramatically over the past year.
And, these higher prices put upward pressure on the Consumer Price Index (CPI),
which becomes the actual measure of inflation.
So, rather than letting economic data stand as merely data alone, it’s the
perception of that data that becomes important in this time of economic
uncertainty(?). Which is why we’re continuously subjected to the kinds
of analysis that have historically been reserved for recessionary times like;
like the following from CNN: “Is it too good to be true? Is the U.S. economy
at long last finally beginning to downshift from its torrid pace and behave?
The problem is, despite the record expansion, much of the growth in prices
has more to do with policy than the expansion itself. Housing related costs
have risen because of Federal Reserve action. Tobacco cost increase, which
have severely impacted the CPI in the past 15 months, have resulted primarily
from lawsuits brought on by governmental units. And gasoline price increases,
though arguably due to excessive demand, are at least partially due to newly
imposed clean air regulations. Furthermore, after two announced production
increases over the past two weeks, crude oil prices are headed back to $25
per barrel.
So, to this point, there really hasn’t been much in the way of demand oriented
inflation ... and, didn’t we all read somewhere that, as long as production
is operating at below full capacity, marginal costs of additional products
actually fall? However, if a slowdown is perceived as good,
it’s in everyone’s best interest to buy into it. That way, at least long term
interest rates can fall, and the cost of housing will retreat.
Consumer Confidence fell dramatically from its record high in May.
But what would one expect with $2+ per gallon gas prices headlining every
news report during the month.
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Housing Industry News’ Update - Local
Prices Decline Again Did City’s 4th quarter sell off continue?
The morning after Flint’s mayoral election, there was “talk around town”
of massive movement from the city by people disgusted with the alleged corruption
and apparent incompetence of the current administration. Although few put
much credence in that “talk,” at the time, the subsequent reports of financial
woes and poor management, may well have had a far more dramatic impact than
the election itself.
Concerns about a “Flint” exodus became critical last week, when NAHB released
its Housing Opportunity Index (HOI) for the 1st quarter of 2000, and we found
the median price of an existing home in the metro Flint area fell for the
second consecutive 3 month period. The HOI, which gets its price data from
1st American Real Estate Solutions, lists the median price of a Flint area
house at $98,000, down 2% from $100,000 in last year’s fourth quarter, and
down an amazing 8.4% from ‘99’s 3rd quarter’s $107,000. Due to the fact that
1st American’s data has proved to be accurate in the past, we had to look
at the 8.4% drop in prices as a serious matter, particularly since actual
values of Michigan homes continued to rise in both quarters according to the
Federal “House Price Index” (Veritas - 6/21/00). And the likely place
to begin the search was the city, since a dramatic rise in Flint’s sales during
1998 had a clear impact on the area’s price data, which basically froze at
the previous year’s level. Unfortunately, we haven’t seen Flint Area Association
of Realtors’ 1st quarter data, but a reexamination of ‘99’s fourth quarter
data proved to be quite enlightening. In previous reports, we’ve noted that
the city was responsible for roughly 23% of countywide sales in recent years,
but was home to nearly 26% of the total in ‘98. Its significantly higher percentage
had a dramatically negative impact on median and average prices that year,
even though its price level experienced a significant rise. Then, last year,
Flint was responsible for just 23.4% of the county’s sales activity, and both
average and median prices experienced tremendous increases ... at least until
the 4th quarter.
We found that sales in the city made up just 22.5% of the county’s total sales
for the first nine months of the year, then soared to 26% of the market for
the final 3 months, by itself, enough to explain the 6.54% decline during
the period. And, it definitely gives us the direction to look at for an explanation
of the continuing decline into this year’s first quarter.
The HOI also shows that Flint area median household income was up to
$51,900 during the first quarter, and still remains in the bottom half of
the nation, and near the bottom of the Midwest, on the index, due to the continuation
of a strong upscale market. Its current ranking is 98th out of 184 metro-areas,
up from 111th in last year’s fourth quarter. And, it ranks 33rd regionally,
up from 34th in the previous report.
During the period, 69.4% of the homes sold were affordable to a family with
the median income, which is up from 67.6% in the 4th quarter. Nationally,
the median income of $50,200 could afford to purchase 62.8% of all homes,
down dramatically from the 4th quarter’s 69.6% due to rising interest rates.
New single family homes sold at an 875,000 unit rate in May, virtually
unchanged from the Commerce Department’s revised figure from April. The flat
sales data follows a six percent decline the previous month.
Still, sales are running at an historically strong clip, and will likely be
off just 4% from last year’s blistering pace of 907,000 units according to
NAHB’s current forecast.
Although sales were down in the Northeast and West for the month, they were
up in the Midwest and South ...
However, there was a somewhat different story regarding existing home sales
data, according to the May report from the National Association of Realtors.
Existing homes sold at a faster than expected pace of 5.09 million units,
up 4.3% from April and nearly 5% above analysts’ forecasts. What’s most fascinating
about the realtors’ report is than mortgage rates peaked at 8.52% during May,
roughly 0.3% higher than rates during June.
The May median price was up to $137,200, roughly 3.3% more than during May
‘99, when the median was at $132,800.
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