Builders hear economic report

Referring to the current U. S. economy as a “mixed bag”, Curtis Smith of SunTrust Bank Atlanta reported that the national economy has “lots of strength, but still has some weaknesses.”

Smith, who is first vice president and South Metro residential construction manager for the bank, was in Peachtree City recently to give SunTrust’s annual Economic Forecast to the Home Builders Association of Midwest Georgia.

The gathering, held at the Wyndham Peachtree Conference Center and sponsored by SunTrust, drew a large crowd of area home builders and representatives from related businesses.

Talking about the national economy, Smith noted there has been a solid gross domestic product growth of four percent in 2004, inflation is at the lowest level in 40 years, there is a record housing market, stock market and corporate profits are up, and there has also been a fiscal and monetary stimulus, provided in part by record interest rates and record governmental spending. However, pointing out that we are in a war economy, he said that the unemployment level has been slow to improve with the largest growth in the service and construction sectors, while the federal budget deficit is at the $500 billion level. Job losses in the manufacturing sector have continued, even accelerating in the past three years.

Smith told the group that unemployment is both a white collar and a blue collar problem. As an illustration, he said that U. S. students’ math scores recently ranked 19th in the world and that many other nations have educational systems that are already impressive or rapidly improving, which has led to many jobs being outsourced “offshore.”

Unemployment problems notwithstanding, U. S. business in general has been doing well because of a number of factors, which Smith mentioned as increasing investment spending, lowering of unit labor costs as businesses are doing more work with fewer people, a reduction from 30 percent to 20 percent in the effective tax rate, and lower debt levels. He said that businesses have been “flush with cash,” but he also pointed out that surging benefit and pension costs are discouraging businesses to hire more employees.

Another factor in the job market problems is what Smith called “creative destruction” due to rapid advancement in technology. “Thing are happening faster now, and technological change is creating new jobs but destroying other jobs.”

The U. S. consumer has been quite as positive as the business sector, Smith reported. “The savings rate has fallen below two percent. We’re Americans ... we spend everything.” The result, he said, is a debt-based economy. While household wealth has been increasing, real wage growth has been almost zero. The high income group has reduced debt, but moderate/low income groups have increased debt.

Smith also said the record low mortgage interest rates have been extremely beneficial to the housing industry, giving consumers increased purchasing power when they have purchased homes.

Turning to the global economy, he said that most economies are expanding, there is a glut of over-capacity from the 1990s, there is free flow of capital and technology, and there is an availability of both low cast unskilled and skilled labor. the effect on the U. S. economy is that service jobs are now being “offshored”, while the U. S. trade deficit is at a record $489 billion, which he described as “the rest of the world loaning us money so we can consume goods.”

Smith asserted, however, that the U. S. economy is “very flexible” and can handle these situations better than other countries.

Returning to the housing market, Smith told the group that the Atlanta area continues to lead the nation in building permits issued. Describing the past year as another good year for the Atlanta housing market, he predicted that in 2004, the increase in housing prices will moderate, the supply of affordable lot supply will be the biggest challenge in many local areas, and there will be increasing competition in the most desirable residential locations. “The biggest challenge builders will face is affordable lot supply,” he asserted. On the subject of interest rates, he said he doesn’t believe the feds will raise interest rates significantly until there has been an increase in jobs for a period of time.

He said that more Atlanta builders have begun to build townhomes, which have been growing in popularity with consumers.

Using housing data compiled by Metro Study, Smith gave the following observations about the current housing market in the Metro South area:

Fayette County - this area was described as being a strong market but having almost no affordable housing. In the $200,000-$300,000 range, lot supply is very tight.

Coweta County - the inventory of houses in the $150,000-$200,000 range is pretty high at present. SummerGrove in Newnan is among the top selling communities in the Metro Atlanta area.

Clayton County - this is a very mature market with most of its homes under $200,000.

Henry County - a booming market with over 3,000 new homes added each year. Most of the activity is in the $150,000-$220,000 range, and there is a lot of competition from builders entering the market.

South Fulton County - this area will continue to be a big part of the Atlanta market because of the amount of available lots and because of its infrastructure.

During the business portion of the association meeting, President Mac McKinney said the organization is considering the formation of a Developers Council within the local home builders association. “There are a lot of things that affect both builders and developers,” he said. “Builders and developers need to work together on these things.”

The Home Builders Association of Midwest Georgia serves builders in Fayette, Coweta, Spalding, Meriwether, Heard, Pike, Upson, Lamar, Butts and Jasper counties. More information about the association and its new radio program can be obtained by calling Sandy Boda, executive officer, at 770-716-7109.