Housing is leading the way in the economic recovery because of the ripple effect it’s creating for corporations.
The Wall Street Journal reported the phenomenon and explained how many corporations have reported increased sales and earnings as an effect of the housing market picking back up.
“While the incoming data continue to be mixed, evidence that Americans are spending more to build and refurbish homes is raising executives’ confidence that the housing market will continue to improve and help fuel the broader economy,” the article commented.
Some of those corporations include Honeywell International Inc. and United Technologies Inc., which both reported increase in sales among heating and cooling equipment. Honeywell’s sales of heating and cooling systems rose 6 percent in the fourth quarter while United Technologies, who makes Carrier equipment, said orders of air conditioning and heating products rose 20 percent in the fourth quarter.
These corporate earnings are in large part an effect of residential construction increases. Much the same, Oshkosh Corp., which operates cement mixers and forklifts, saw an increase in business over the last few months.
The ripple effect continues even further.
Ethan Allen Interiors Inc. reported a 22 percent increase since the previous year and DuPont Co., which produces carpeting fiber, said it had a higher demand in the fourth quarter of 2012 as well.
Finally, companies that are indirectly related to the housing market, like Union Pacific Corp, a rail-freight operator, said lumber shipments increased 17 percent and an increase in moving furniture contributed to the 7 percent rise in fourth quarter 2012 profits.
An increase in construction and renovations influences each of the corporations mentioned, and eventually their successes will provide their own ripple effects.
“Improvement in the sector could help broad tracts of the economy by creating jobs, improving consumer confidence and boosting property-tax receipts for municipalities,” the article stated.
However optimistic these reports are, the WSJ article is quick and accurate to note: “The sector is hardly out of the woods.”
There are a multitude of other factors that will affect the revival of the housing industry so these reports of gains from construction and renovations are not a cure- all.
Honeywell CEO David Cote gave an honest and straightforward approach for how we should all view this information: “Just because the news looks a little better the last couple of weeks, we just don’t think this is a good time to declare economic victory.”
While it may be too soon to declare victory right now, the ripple effect the housing market has already created is expected to continue and in doing so, may provide the necessary components to declare victory down the road.
- J.D. Crowe, Senior Vice President of Southeast Mortgage