Elections do a number on consumer sentiment and confidence. Especially the every-four-year kind that result in a chief executive for our country's government, and hold out the potential, at least, for re-tipped balances among Congressional representatives and partisan power.
Probably the most significant force or factor sitting in the soup of uncertainty ahead that could impact abundantly-evident strong demand for homeownership's spectrum of new and used house and community options is a blow to consumer confidence.
National Association of Home Builders senior economist Jung Fu watches the most widely accepted measures of consumer confidence, from The Conference Board and the University of Michigan. She's tracked us to the present, noting that The Conference Board's latest readings--for August--blipped up for the total Index as well as for component measures for the "present" and "expectations."
What's more, while consumers' outlook on jobs was somewhat fuzzy and mixed, an unequivocal positive in The Conference Board data set spotlights respondents planning to buy a home within six months. This benchmark rose from 5.1% to 6.4% from July's numbers.
All this is by way of saying that election risk--and presidential elections' tendency to go hand-in-glove with economic recessions--comes at an especially awkward moment in housing's still-iffy recovery trajectory.
From here, we see two "gorillas in the room."
One is economic, the other operational. One has to do with external constraint, the other an internal architectural impediment challenging good companies to do well during the next stretch of time.
Economic headwinds blow in from the source of most economic anxiety these days, which is jobs and income. Importantly, as Jed Kolko--newly ensconced as chief economist at job site Indeed--notes in a post he published last week, "The Geography of Economic Anxiety:"
"It turns out that the places with more economic pain today, as measured by the unemployment rate, are not the places where future job losses are most likely to be a drain."
The value in Kolko's analysis is his astute recognition that the snapshot of unemployment now, vs. the projected scenario of where employment anxiety has reason to build in the months ahead exert two separate forces on the economy. And they send opposite signals. For home builders and residential developers, it's particularly important to read and understand around the next corner when it comes to consumer confidence and sentiment. That's the kind of reading Kolko's take on the data provides. He writes:
"Among the 51 metropolitan areas with at least one million people, the share of jobs in shrinking occupations ranges from 8.2% in metro Washington DC to 11.6% in Milwaukee. Those with the lowest shares of jobs in shrinking occupations include Las Vegas and New Orleans, which have relatively low average incomes and educational attainment levels — which is a reminder that shrinking occupations aren’t necessarily low-wage jobs."
The other important take-away from Kolko's piece is the recognition that economic anxiety is the enemy of confidence and consumer sentiment. Consumer behavior tends to reflect not just "current conditions" but also is hard-wired to "expectations." Where jobs stability, wage and income power, and employment are trending to the negative over time, consumer confidence will erode faster. Fear works back from the future into the present, especially when it's as households consider such a big-ticket item as a home purchase.
For home builders and residential developers, the only antidote to more adverse external conditions is a business and operations model that works (opportunistically) in more adverse external conditions. The internal, operational, architectural challenge to home building company operators is as simple as this paradoxical commandment, underlying most free-enterprise models destined for a future: do more with less.
This is what's at the root of our friend and business partners Fletcher L. Groves, Brandon Hart, and Clark Ellis do with their Pipeline Workshop, October 26 and 27 in Ponte Vedra Beach, Fla.
Low hanging fruit lessons learned after the Great Recession got many builder operators to the point where they gained insight and efficiency to the point where they could 1. do more with the same resources, or 2. do the same with less resources. Groves' "velocity" operational model focuses on managing outcomes, improving processes, and gauging investments of time, talent, and dollars toward a single economic end: doing more with less.
A few companies--D.R. Horton, NVR, DSLD, LGI, to name a few--have solved for both business model architectures, operational processes, and management cultures that allow them to do more with less. Almost any other firm's leadership would benefit from participating in Pipeline. Now, as consumer confidence trends get buffeted in the noise of presidential electoral forces, there's hardly a better time to stress-proof your business and operational model for what's ahead.