EPISODE 7
In our latest Simon SumUp, Joshua discusses Black Friday's record-breaking numbers; the ups, and downs of steel prices in 2018; and what we can expect from development and construction costs in 2019.
THREE TAKEAWAYS
1) Black Friday Records
Holiday shopping got off to a hot start on Black Friday. Total Black Friday sales are estimated at a record $23 billion, up 9 percent from last year.
Also on the rise? Online sales. Those were up a whopping 23 percent from last year to $6.22 billion. And this Black Friday was the first day in history to see more than $2 billion in sales coming from smartphones.
While mobile devices were a popular shopping medium, a popular delivery option has been “click-and-collect”; up 73 percent from Thursday to Friday, with many stores hoping the in-person pickup will translate into additional purchases.
Additionally, consumers spent more on average than years past as well. Shoppers were seen buying more big-ticket items like appliances, furniture and bulkier electronics, with average order values up 8.5 percent year over year to reach $146.
Fueled by a healthy economy and strong consumer confidence, this holiday season is expected to be one for the record books.
Thanksgiving coming earlier this year, and Christmas falling on a Tuesday should also be very favorable to retailers. That schedule is expected to result in Sunday, December 23 sales that match Black Friday figures.
2) A Rollercoaster Ride for Steel
It’s been a rollercoaster ride for steel prices this year.
We started 2018 with the cost of steel hovering around $700 per ton.
That number jumped roughly 50 percent between then and October, reaching a 7-year high in mid-2018.
However, it took a drastic dip of nearly 20 percent between October and November.
Part of that dip could be attributed to an increase in global steel production. Production increased to 156.6 million metric tons during October, up 3.4 percent from September.
However, dips (a result of a recent Chinese surge in production) may also be temporary, ahead of scheduled winter cuts in production.
China accounts for roughly one-half of total steel capacity worldwide. Even with U.S. tariffs impacting the direction of trade flows, Chinese producers still export nearly 70 million tons annually.
Due to tariff uncertainty, we don’t quite know where steel prices will be 6 months from now, but if the 2018 ride is any indication, general contractors and developers should plan appropriately.
3) What to Expect in 2019
Three factors impacting development costs in 2019:
1. Trade tensions - As inventories of goods purchased before the tariffs took effect are depleted, contractors are likely to face even higher costs.
2. Labor shortages - Estimates are that 400,000 to 500,000 jobs are currently ready to be filled, but with no qualified workers to fill them. Additionally, average hourly earnings for all employees in construction rose 3.9 percent in the last 12 months—the fastest pace in nearly 10 years—a sign that the industry needs workers.
3. Interest rates - Associated General Contractors of America officials note that rising interest rates could undermine future demand for construction services.
As for materials, almost all construction material segments are expected to see price increases in 2019.
In terms of overall construction costs, industry opinion is a 5 to 10 percent increase but I forecast closer to 3 to 5 percent.
