Gearing Up for the Year Ahead
As some of you know, in addition to being a financial planner, I am also an officer in the Navy Reserve, and I have received orders to the Middle East in support of Operation Iraqi Freedom. I expect to be gone for most of the year. While I am excited to lead my troops in the mission we have trained for these past 11 years, I am disappointed that I am going to miss out on what I think is going to be a very exciting year for the construction industry.
The economy is doing better than I hoped, and 2004 looks like it will be another banner year. Inflation continues to be remarkably low at a core rate of 1.3 percent, gross domestic product should grow at over 4.5 percent, consumer confidence is rising, we are starting to see significant job growth, and worker productivity continues to grow at a remarkable rate. To top things off, last week the Federal Reserve decided to leave short-term rates at their current rate of 1 percent, and in doing so they announced their belief that while the threat of deflation is largely gone, there is little chance of inflation surging anytime in the next two quarters.
For the economy, this means that interest rates should remain low well into next year. For your business, this means that housing starts, housing sales and remodeling activity should remain brisk for 2004. Commercial construction should also remain strong as companies are increasing their investments in plant property and equipment. The stock market has responded well this year due to rapidly improving corporate profits, and should see another good year in 2004. People are feeling wealthier and will be more motivated to invest.
In short, sales should be good, profits should be good, and your wealth should increase accordingly. However, your industry still has some significant challenges ahead of it.
Construction defect liabilities, especially mold, will continue to be a problem. Workers compensation, liability insurance and medical insurance rates are likely to keep rising. And of course, sales will have to slow down at some point. Real estate like all investments is subject to the greed and fears of investors, and when property prices stop rising demand will drop off sharply before stabilizing.
As I prepare to leave, my advice to you is to continue to focus on ways to improve your company. Every department should look for ways to improve their performance on a continuing basis. Plan for growth, but remain prepared to cut back if sales start to slacken. At some point things will have to slow down, and although I do not see this happening in 2004, I would not be surprised to see it happen in 2005. I would not allow my fixed costs to rise substantially without a plan to reduce them if activity slows.
Make sure that you know what is going on with your customers. If you are working in new construction, talk with your developers about their plans for 2004. If you primarily work in service, make sure you understand what value you bring to the table.
Talk with your partners, key employees, insurance agents and attorney to make sure that you do not have uninsured liabilities. It would be a shame to lose a lifetime of work because your coverage wasn't what you thought it was.
I am an optimist by nature, but I have seen too many horror stories to ever want to leave things to chance. I know most of you feel the same way, and I am confident that things will be great when I return. I look forward to picking up where I left off when I get back.