49 Tweets into the future

Predicting what will happen in business is hard. In the construction business, it’s even harder in any economy.

The Regional Outlook Conference by McGraw-Hill is one of the events where you get to hear a first-hand view of upcoming trends and economic conditions that will affect construction in the coming year. Presented by Robert Murray, V.P. of Economic Affairs for McGraw-Hill Construction, a position he has held for over 15 years, the information is designed to help marketers plan for business by taking a peek into the future.

I was at a 2012 event in Chicago and I have heard Bob speak before. He has also talked to major newspapers such as The Wall Street Journal (WSJ) on industry developments and his comments have appeared in BusinessWeek, CNN, FOX Business and other media outlets. In 2012, I decided to tweet during the conference, which I assembled my tweets and can now offer you what I heard (if you weren’t following).

What has changed? Has anything, or has everything?

In that presentation, Murray used the word “uncertainty” over 30 times. Are we living in more “certain” times now?

For better or worse, here are the 49 tweets with some of what we know and found out and some comments on what has changed, if anything.

1 “Dave Rhodes introduces Bob Murray to get the 2013 on the road. Here we go. Opening phrase: ‘huge amount of uncertainty.’” Dave has been with McGraw-Hill Construction for awhile, and serves as the Midwest Region Sales Director. I’ve known Dave for several years. A straight shooter. Today, Dave is no longer with McGraw-Hill. In fact, McGraw-Hill Construction isn’t here either. It’s morphed into Dodge Data & Analytics, Inc. which has a strategic partnership with Global Product Data, LLC. Things change.

2 “The long long recovery. Slugging along. Frustrating period. Executives questioned about recovery was downgraded. Wait and see period.” Murray is pointing out that everyone is wondering if we will be able to avoid the “fiscal cliff” and another recession. Well, it really wasn’t a cliff, but it was quite the slide downward. But that old saying what goes down, must come up is really the take, here. Witness the roller coaster down this past year as well. I’d say, no change here.

3 “Prospects for US economy. If policies don’t change, contraction happens. Will calmer heads prevail, or are we in for trouble?” Throughout his presentation, Murray would ask rhetorical questions like this, and then proposed alternative answers. The swinging and swaying made some people in the audience dizzy, as evidenced by their smiles, frowns, etc. But then, how could any strong prediction be offered? Looking around, “are we in for trouble” has been the dominant theme year over year, wouldn’t you say?

4 “Morgan Stanley survey said 40% of companies said they are holding back on investment because of fiscal cliff.” We have read this and heard this idea almost on a daily basis. http://goo.gl/NvDwX is perhaps where Murray read in the NY Times that Vincent Reinhart, chief United States economist at Morgan Stanley, said that comment, and that he “expects that portion to rise when the poll is repeated this month.” There is no shortage of people using “fiscal cliff” in their commentary. But when you are faced with a cliff, there are only three choices: jump, climb down, or turn back and find another way to where you are going (assuming you are going somewhere). Only if you have a strategy can you decide between these alternatives. Respectfully, “wait and see” is not a strategy. Those who stayed the course, won. In fact, the Dow Jones was around 12,000 in 2012. In 2018, the average was around 25,000. Some cliffs pay off, don’t they?

5 “Nonresidential down 10% in 2012, but up 5% in 2013.” Well, that’s still down according to the way I do math. This is the problem when looking at numbers: they are relative to something else unless you are doing straight math (i.e., 2+2=4), and unless you know the “else,” then what you hear may not be reality. For example, if the projection for 2012 is that nonresidential is going to be up 5%, it’s up over what? According to the chart I saw, nonresidential was down 30% in 2009 alone, and it still hasn’t recovered! So does that mean that despite an upward tick, we are still off 25%? Business is relationships, and the math of business is relational. For nonresidential construction, it has been climbing every since. Big change.

6 “Everything looking up in square footage for nonres bldg. 1% in 2012, 6% in 2012 (but after being down over 40% in 2009).” Here again, the chart was showing over 40% drop in 2009 for square footage, about a 12% drop in 2010. Furthermore, the chart showed an 18% drop in 2008 (all on a zero basis). Add that up and you have more than an 80% drop in square footage for nonresidential building construction since 2008. And then the prediction is 6% up in 2013? Pardon me? But, should we be excited? The tone of Murray’s presentation was just that: seeking positives within a sea of negatives, or at least it seemed like this to me. Well, Murray was right. It’s been going up ever since.

7 “After huge declines, surprises in 2011 was dollar value was up 13%. Stalled this year.” This was interesting, But if that means our money has more value, how does that translate into the construction future? Is that one of the reasons that things “seem” to be opening a little? Whatever I purchased in 2012 for a buck would cost me $1.10 in 2018. Pretty much the same, so not much change here.

8 “Shocker is down 13%, and hopefully to zero next year for nonresidential. If decline continues in 2013, recovery will be delayed.” Murray was speaking about institutional construction, I believe, for 2012. I still don’t know what Murray was referring to here.

9 “Downside risk? You bet. Upside? At some point it will pop. I think it will be in 2014, not 2013.” This “popping” that will happen “sometime” seems to be a general consensus. Everyone wants good news now, however, but “now” isn’t happening. How can it when you see the slides I saw? The hammering we took since 2008 is unbelievable, and you can see it in any public-sourced documentation. Yet, this should not prevent us from having a strategy, and then doing something about it – should it? Well, the strategy was steady as she goes, and if you followed that, things popped over the last two years.

10 “Dodge Momentum Index bottomed out in July 2011; seems early stage of recovery subject to hiccups” The Dodge Momentum Index tracks the first (or initial) reports for nonresidential building projects at the planning stage (McGraw-Hill was a terrific resource for construction information, and they base their information on this proprietary source). The Index was created to give a sense of the movement of building construction in the U.S. overall. According to Murray, construction bottomed out in July 2011, and has been trending upward tenuously since then, and because it “hesitated,” the recovery will be in pauses. This start-stop action theme ran throughout his presentation, and is probably the underlying reason for the word “uncertainty” used to many times. If you can’t get traction, it is difficult to find a trend line that will vault upward. Again, has been going up since 2012!

11 “References NY Times piece, everyone sitting back and hunkering down.” http://goo.gl/eVKNT is the link to this reference made by Ace Clearwater’s Kellie Johnson, the owner, as she decided “not to fill eight open positions among its 200 member work force.” She also canceled a half-million-dollar machine order, and opted to buy a used forklift instead of a new one, then said: “’ Everyone is sitting back and hunkering down.’” That was in August, but have things really changed? I don’t think so. Hunkering down is an interesting concept, and worth thinking and writing about later. The fact is, if you hunkered down, you lost. People who invested in technology, in people, are now reaping what they sowed: business.

12 “Never look at the employment numbers when they first come out because they are always adjusted.” Ain’t that the truth? And yet we seem to live and die on these initial numbers, never realizing that like ROI in advertising, things just take time! Besides, as pointed out, the numbers often do not mean much without being able to judge the basis upon which they were created. Your business can be up 100%, but if you started at zero, that’s not hard. One of the interesting things these days is people’s disbelief of numbers. Everyone seems to be an expert, and even the experts are doubted when it doesn’t suit a particular agenda. The marching orders are: take care with what you believe and act on.

13 “Friday, we will get the jobs report for October; will generate a lot of comment.” An understatement. You know what happened. Here again we live and breath by the numbers each month. What are you doing in your own company? More importantly, why?

14 “Undecided voters might be making a decision on numbers that are incomplete.” Are there ever any complete numbers? You can go to http://goo.gl/VTPuM and see the comparatives between organizations in telling us what will and will not be part of our construction future in 2012! Just scroll over the left and watch the numbers change. Get ready to place your bets! For today, you can go to the consensus forecasts here.

15 “Takes awhile for higher prices to get through to consumers. Price of oil seems to be stabilizing.” While that might be true, what is also true is how FAST prices change and adapt to those original spikes in the hikes. According to the WSJ on microwave oven wars, “Sellers on Amazon.com Inc. changed its price nine times in one day, with the price fluctuating between $744.46 and $871.49…Best Buy responded by lifting its online price on the oven to $899.99 from $809.99 after the Amazon prices rose, then lowering it again after Amazon prices for the oven dropped.” So, what was the original price of the microwave to the retailer? The entire pricing-of-product channel is under severe disruption, which means so is the construction channel for its products. While it might take time for higher prices to get to a consumer, that time is being squeezed these days by the disruption in multi-channels to see profit. Witness what Amazon has done since 2012!

16 “Low interest rates are nice, but until easing of uncertainty, it doesn’t do anything.” There’s that uncertainty word again.

17 “Commercial loans coming due might be pointed to another financial crisis.” Kevin M. Levine, Executive Vice President, Peak Asset Solutions, wrote a piece http://goo.gl/mqoLU about commercial real estate loans now coming due and being unable to be refinanced as a result of declining property values. And the NY Times http://goo.gl/dvom0 in early January carried Tom Fink’s (a managing director at Tripp) warning: “We are going to see a wave of loans maturing this year, then again in 2014 and 2017, when the 7- and 10-year deals underwritten during the bubble mature.” Nothing uncertain about this and where it points. It’s interesting to read what they people said back then, isn’t it? It sounds like a lot of what people are saying now. What has changed is that everyone, now, seems to be an expert because of the spread of information at your fingertips. So much information, so little time.

18 “Data source: mortgage banker’s association has good information. In 2Q up 39% from 1Q, still low, but beginning to move up.” http://www.mbaa.org is the association’s website. It’s still always good to have a source for reliable information.

19 “View summary.” A mistaken tweet (too fast on the fingers).

20 “WSJ article, Hudson Yards project. $15B http://goo.gl/QONR6 that he contributed to.”

21 “Impending fiscal clip. Uncertainty about tax cuts being extended. CBO says leaving things along can head us back to recession.” I meant to tweet “cliff.” Wouldn’t it be better as clip?

22 “Reviews candidates. Obama helps public works; Romney eases regulations. New administration takes time. Trail of uncertainty.” You see what I mean about the word?

23 “Illinois has lowest credit rating of 50 states; second biggest debt per capita.” Murray tries to regionalize the information when he presents, which is a good thing. However, in Illinois, it is difficult, as our state has no sense of fiscal responsibility.

24 “Single family housing. Up 24%, 2013 up 21% Chart is ugly, but generating momentum.” Ugly isn’t the word. Horrible is better. The chart showed the cliff – a drop off from over 1600 starts right before 2006, to 400 in 2009, and then sputtering along since then at 500 to 600.

25 “Alteration work tends to be more stable; it’s been maintained through all this.” It’s always been about “alteration” or “renovation,” which McGraw-Hill really doesn’t measure. No one seems to have a handle on this! Why is that?

26 “View summary” (again, too fast on the fingers. Please excuse me).

27 “S&P Case Shiller Index http://goo.gl/KAahX up for three months. Inventory for homes is at four months. Not a boom.”

28 “Multifamily Housing top mkts: New York, Washing DC, Miami, Los Angeles, Boston, Dallas, Seattle, San Francisco, Austin, Houston.” Murray showed Miami with a 135% increase in this area! Assisted living here we come!

29 “Pulled large projects in multifamily. Brickell CitiCentre in Miami is top one http://goo.gl/G3QQI.” One of the great things about Murray’s presentation is that he gives you a list of projects related to the market he is discussing, as in the case of the Brickell CitiCentre – Condo/Apartment portion of the project in Miami. Oceana Key Biscayne Luxury Condos‐Villas was the other one in Florida (Key Biscayne). There were six in New York in this category, but because of Sandy, you probably won’t see much going on there as the re-construction will take the bulk of the workers’ attention. There’s a prediction for 2013 you can take to the bank.

30 “Commercial. Stores. Extreme discounters stilling. $113 million square feet. At least it’s not falling.” Murray pointed out that extreme discounters like Dollar General were expanding, and that the segment seems to be expanding. But, at what rate, and what is that segment anymore? The concept of “stores” is like all concepts, in disruption. For example, Accenture has an excellent white paper called Winning the Retail War (http://goo.gl/uE8wC) that contains many curious sentences, including this one: “If the company maintains its current growth trajectory, Amazon will be the world’s 6th largest retailer by 2015.” But Amazon doesn’t have any stores – right? Earlier this year I tweeted: “Uh-uh. Amazon said it built 17 new fulfillment centers in 2011 for a total of 69. Uh-uh. Pay attention Walmart. http://goo.gl/7qWaF.” You’ll see in that link the WSJ article and take a peek into their strategy: their stores are warehouses. And then a few weeks later, I tweeted this: “Walmart and Amazon are almost equal in value as brands according to BrandZ. You think?” This is Millard Brown’s BrandZ measurement of brands, a great resource for valuation of those intangible assets called brands. Walmart has 9000 stores in 15 countries and 2.1 million employees, and guess what? They are creating Facebook pages for all their U.S. stores! When you analyze this category, be sure to consider the “store” concept!

31 “Warehouse construction leading stores. Internet retailing is the reason, i.e., Amazon. Sizeable increase 38% in warehouse this year.” As referred to earlier.

32 “Top retailers doing construction Walmart, Macy’s, Menards, Target, Kroger, Cosco, CVS, Kohl’s.” Interestingly, except for Macy’s, the list of recent projects on Murray’s chart were all malls or shops! In the UK, for example, showrooms will become more focused on establishing brand visibility and service than on generating in-store sales. This is probably a peek into what will happen here as increased online spending happens!

33 “When it’s so low, it is easy to get large percentage increase as in Hotels. Construction up 54%.” This is exactly the point with numbers. We all wrote off the hospitality industry in 2010. As it climbs its way back, will it ever hit its 77 million square foot mark? By the way, currently it is at 27 million!

34 “Luxury-related projects, Florida, California, New York. Revenue per available room, luxury is up 8%; upscale up.” The list Murray showed for large hospitality projects were luxury related for the most part, and many renovation and expansions. Four of the 12 were in Florida. We study this luxury segment, and there are many resources for your reference. For example, one of the trends we see is that despite people doing more and more online shopping, 61% of consumers prefer to shop in-store for luxury products according to Empathica http://goo.gl/iy4XX. It is referred to as “the experience,” and for the luxury buyer, that is what they are interested in: the experience. One of my tweets this year drove people to the Luxury Institute and their blog, “Customer Experience is New Luxury Battleground,” which you can find here: http://goo.gl/L2Uzr.

35 “Office Buildings. Stability. But no renewed expansion. Much of recent activity is that public fallen back in 2012.” This was a sad chart, because there is a lot of empty office space out there. The exception is the data center.

36 “Data center element comes out loud and clear in office buildings. Clifton Cloud Connection Center, Clifton NJ is top job.” When Murray put up the top projects for office buildings, at least four of the 12 were data centers! And that makes sense, doesn’t it? The term nowadays is “big data,” and there is a great presentation from Booz Companies, “Benefitting from Big Data: Leveraging Unstructured Data Capabilities for Competitive Advantage”. This data must be processed somewhere, and the more you process, the more places you need.

37 “Data centers rock: Clifton Loud Connection Center (NJ); AT&T Data Center (NC), Data Center (VA), Microsoft Data Center (IA)”

38 “Institutional, Education. Continues to lose momentum. 18% decline in this category this year.” This was depressing. Every number in the 2012 YTD square footage column was a negative number, including Primary, Jr. Highs (-12%), High Schools (-24%), Colleges & Universities (-14%) and the others (Libraries, Laboratories, Museums, Community Colleges and more). Makes me wonder if some of that stimulus money shouldn’t have been put here, doesn’t it?

39 “Healthcare. Fell sharply in 2012, hospital taken a nosedive. But Veterans Administration projects helped ease slowdown.” Four of the top 12 of these projects were in California.

40 “Public Buildings continue to retreat. Lots of minus signs. Amusements and Rec, slightly up. Airports doing renovation.” This was one of the most surprising slides for me personally because I had believed (I don’t know why) that public sector buildings were being built. Not according to Murray, which showed a steady decline since 2009! Murray said that this sector received the benefits of 2009 federal stimulus act for courthouses, federal buildings, land ports of entry, and his top projects were just that: courthouses and jails. Our own proprietary research reflects this, yet, Murray is saying that there is a 25% reduction in construction compared to the previous year – add that on top of negative numbers since 2009. Where IS all that money going?

41 “Manufacturing, uncertainty, trade slowdown. We think there should be an upward trend, but its weakened.” This is always interesting when the projection of “we think” doesn’t match the reality. There is always commentary in the press about manufacturing, and two of the more recent ones that are interesting are: In manufacturing, 67% of respondents to a Deloitte survey reported moderate to severe shortage of available, qualified workers http://goo.gl/VLJ4g, and with our unemployment so high, how can that be? According to Nick Schulz writing in the WSJ (http://goo.gl/7sASV), simply finding someone who can properly answer the telephone is sometimes a challenge. These were recent tweets, and you might be interested in reading my blog on this topic, which you can find here.

42 “We only pick up projects at $200K. Over one third of stores and office buildings value come from alterations.” This is always mentioned as the “hot spot.” One of our former clients who passed away believed (we think rightly) that the majority of work comes from renovation – not new construction.

43 “Baseline and alternative forecasts. Total construction between +6% to -7%. Commercial +12% to -6%. Single Family +24% to -2%.” The swings on these forecasts make you shudder, don’t they?

44 “I think he is doing his best to tell people that there are positive signs going on, but he really doesn’t believe his own message.” This was a difficult tweet to write, because it’s a judgment call based on a moment in time. In listening – and they only had time for a few questions – the audience seemed subdued. There wasn’t a lot of talk afterward, either. Earlier, many people would walk to the windows looking for the 30-foot waves that should have been pounding the shoreline from Hurricane Sandy. Lake Michigan was calm, and the people, disappointed. Of course, the waves appeared later, probably like the recovery will appear, later.

45 “I think he hedges every comment with words like “unknown.” Again, this is my conclusion. No one wants to go out on a limb and be wrong, do they?

46 “Murray used the term ‘uncertainty’ at least 30 times during the presentation.”

47 “Constant dollars, current dollars, I thought dollars are dollars?” This has always been confusing the issue for me. My business philosophy is simple: if you have more money coming in than going out, you’re doing good. If you have more going out than coming in, you’re not. It doesn’t matter what adjective you use in front of “dollar.” Sure, we can say it’s worth more or less, depending on whatever you measure these things against. But in business, money is simply how you keep score. The ultimate metric.

48 “Do I think 24% uptick in 2014 is possible? Yes. But it requires eliminating uncertainty. I have no idea what is going to happen.” This statement astounded me, and put everything in its proper perspective. No one knows what the future holds. So if that is true, let’s just deal with it! Make a plan, follow it. Adapt, change or disappear. Anything else is just speculation.

49 “One more year, 2013, on extended process of turning the corner. Hopefully, by 2014, more of a real recovery.” Hope is the proper word. But hoping isn’t going to get you there. Doing is the only thing that turns hope into reality.

Speaking of hope, we hope you found our blog interesting, stimulating, and helpful in your planning. If you would like further discussion on any of these points, and our particular point of view to share with yours, or if you have a different point of view, go to interlinegroup.com/contact and talk to us. Thanks for your time!

For more insights follow interlinejim@twitter

Leave a Reply

Your email address will not be published. Required fields are marked *