International Door & Operator Industry

NOV-DEC 2018

Garage door industry magazine for garage door dealers, garage door manufacturers, garage door distributors, garage door installers, loading docks, garage door operators and openers, gates, and tools for the door industry.

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MANAGEMENT Business economics commentary from the staff of Zoller Consulting, Inc. V O L U M E 5 1 I S S U E 6 D E C E M B E R 2 0 1 8 19 Continued on page 20 In the second quarter of 2018, U.S. Gross Domestic Product (GDP) grew by 4.1 percent - the fastest pace since 2014. Coupled with unemployment approaching an 18-year low, indicators would seem to signal a continuation of the nine-year economic expansion. Yet some economists – admittedly an often dismal group of people - are starting to see some recessionary signals, including a slowing pace of construction activity. Should the construction industry - and more specifically garage door dealers and manufacturers -begin planning for the next recession? The best answer to this question is that all business managers should have some contingency planning for inevitable economic turbulence. However, our focus here is specifically a cautious view of economic conditions in late 2018 and early 2019. Inflation, Monetary Policy Reaction and Tariffs Recent surveys of economists indicate t most of those who anticipate a recession expect higher interest rates and cost increases precipitated by increased import tariffs to trigger a recession in late 2019 or early 2020. The economy has benefited significantly from historically low interest rates, which have driven economic recovery. However, fully employed demand driven economies become inflationary as prices escalate in response to spending, which in-turn fuels higher costs. Actually, small degrees of inflation help spur economic growth, but too much inflation erodes consumer purchasing power and seriously jeopardizes asset values such as retirement savings. To offset injurious inflation, the Federal Reserve applies Monetary Policy in the form of increasing interest rates. Higher interest rates will reduce the demand for investment capital, which in-turn inhibits activity such as construction projects. This results in fewer jobs, less consumer demand and thus, less inflation (theoretically). The problem is: reducing excess inflation tends to stall economic growth, which may result in decreased GDP, reduced incomes, less employment, reduced manufacturing and lower retail sales. As of fall 2018, most observers see GDP continuing to grow, at least until Monetary Policy approaches a point where it constrains economic activity. Usually, an economic recession is said to occur if GDP declines for more than two consecutive calendar quarters. An additional inflation factor has arisen in the last few months in the form of import tariffs and the retaliatory responses they will evoke from various trading partners. Any sort of "trade war" could make goods more expensive - while at the same time creating job-cuts in certain industries. Walmart, the world's largest retailer, has warned Let's begin by stating unequivocally that we are not predicting an imminent recession. Yes, in our five-year forecast last April, we did predict an eventual and short "technical" recession likely for 2020. Right now, economic conditions remain quite strong and the garage door and operator industries continue to experience record demand. However, there are some early signs of potential slowing in construction activity and successful management is best served by being alert to change. Business is very strong, but expansion will eventually end. Business is very strong, but expansion will eventually end.

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