TIM LESMEISTER - Trade Show Executive

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T r e n d i n g & S p e n d i n g Sponsored by PrivilegedAccess.tv Reversing Housing Slump Will Be Key to Reviving U.S. Economy Darlene Gudea, VP/publisher & editor Trade Show Executive’s Trending & Spending Forecast Fig. I: TSE Forecast of Net Square Feet of Exhibit Space 13.2% 2nd Quarter Fig. II: TSE Forecast of Number of Exhibiting Organizations 9.5% 2nd Quarter 12.1% 2009 8.6% 2009 Fig. IlI: TSE Forecast of Professional Attendance 18.0% 2nd Quarter 15.0% April 10.5% April 22.5% April 12.5% 2009 Fig. lV: TSE Annual Forecast of Revenue 18% Frank Chow, chief economist Year Ending December 2009 By Darlene Gudea, VP/publisher & editor “While everyone seems to be looking to the $787 billion economic stimulus plan or the multitude of bailout deals to stem the recession, I believe the administration’s plan to stem home foreclosures holds the most promise toward halting further deterioration of the U.S. economy this year,” said Frank Chow, chief economist for Trade Show Executive. “Notice that I didn’t say recovery, which most economists now predict may be another year or two away. Because the roots of the current global crisis emanated from the subprime home lending debacle, the key to stabilizing the economy starts with reviving the housing industry,” he pointed out. To appreciate the magnitude of the problem, let’s get an update on the current housing situation. In a nutshell, housing is still not a pretty picture as construction of new homes, applications for future projects, home prices, and sales of existing homes are plunging to record lows, while foreclosures keep skyrocketing: • New home construction dropped 16.8% in January after falling 33% for all of 2008 on top of the 25% decline in 2007. According to the Commerce Department, this was the slowest pace on record dating back a half-century. • Applications for building permits, a good barometer of future activity, dropped to a record low, falling 4.8% to a rate of 521,000 units in January. In 2008 it was down 36.2%. • The Standard & Poor’s/Case-Shiller U.S. National Home Price Index plunged 18.2 % in the Fourth Quarter of 2008 from the prior-year period, the largest drop in its 21-year history. The index has fallen every month since January 2007. • Existing home sales fell 5.3 % in January, reported the National Association of Realtors, to a seasonally adjusted annual rate of 4.49 million -- the lowest rate in 12 years. Economists had been looking for an increase of 1% to 2% from December. • 2.7 million American homeowners faced foreclosure proceedings last year, and that number could soar as high as ten million in the coming years, according to a recent report by Credit Suisse. More economists are pushing recovery estimates further back into 2010 and even to 2011. “Conditions in the market for new homes have not been this bad since the 1930s and they continue to worsen,” said Patrick Newport, an economist at IHS Global Insight in Lexington, MA, who predicted that housing starts would remain depressed for months to come. So, as the recession matures in 2009, more people will lose their jobs and fall behind on their mortgage payments, resulting in more foreclosures. Even Americans are feeling grim about the prospects of a turnaround, Chow said. The Conference Board’s Consumer Confidence Index sank in February to the lowest level ever since its inception in 1967 as widespread layoffs, shrinking retirement accounts and plunging home prices fueled fears. “As long as home prices are falling, the financial system and the economy will continue to unravel,” said Mark Zandi, chief economist at Moody’s Economy. com. This is where President Obama’s new $275 billion mortgage relief program steps in. Generally, $75 billion will be spent by the government to modify monthly payments for at-risk borrowers by subsidizing interest rates. The goal would be to bring down payments to no more than 31% of a borrower’s income. While voluntary, the program would give mortgage lenders or investors $1,000 for each modification and another $1,000 a 14 March 2009 Trade Show Executive www.TradeShowExecutive.com
Sponsored by PrivilegedAccess.tv year for three years if the borrower stays current. Another aspect of the plan helps borrowers who can’t refinance to a lower rate because the value of their home has slipped below the mortgage they owe. These slightly “underwater” borrowers must have a loan held by Fannie Mae or Freddie Mac and don’t owe more than 105% of their home’s current value. The plan also calls for the U.S. Treasury to strengthen Fannie Mae and Freddie Mac by injecting another $100 billion into each mortgage company. This program, named the Homeowner Affordability and Stability Plan, starts March 4 and is estimated to help nine million people. However, there have been some criticisms of the plan, Chow pointed out. The more prices fall, the fewer homeowners will qualify for the plan since it is restricted to the 105% value limit. According to Moody’s Economy. com, almost 14 million homeowners are already underwater, meaning they owe more than their homes are worth. Also, many homeowners who pay their mortgages on time have railed against the government using taxpayer money to bail out borrowers they see as irresponsible. Others do not want to pay higher taxes to cover the bad debts of others. Finally, some analysts say this will not be enough to stop the bleeding. Will this plan work? “No one really knows,” said Chow. From a strict economic perspective, bailing out borrowers who put almost no down payment and obviously cannot afford the mortgage to begin with is like trying to use the relief plan to force a square peg into a round hole. “No matter how much you try to modify, it’s not a good fit; the borrower will most likely walk away from the home eventually, just a few years later,” he pointed out. Also, it will only prolong the “underwater” problem by encouraging more homeowners to default, he believes. “A more effective plan I think would be to provide incentives to lenders and prospective credit-worthy buyers to complete the sale of foreclosed homes,” said Chow. This will soon eliminate the bad inventory and allow home prices and the housing industry to recover. If the government wants to help the delinquent borrower, then give a rental subsidy for five to ten years instead of subsidizing a mortgage for 30 years. Lenders can still choose to do modifications on an individual basis. “This plan is less intrusive, would be perceived as more fair, and lets market forces work more quickly,” he said. Despite the dreary news, some economists are predicting a bottom for the housing market by the end of this year. They contend that the drop in home values will soon entice more sales and the reduction in new projects will stabilize prices for those left on the market. David Crowe, chief economist for the National Association of Home Builders, said the administration’s foreclosure program plus help for first-time home buyers included in the stimulus measure would have an impact, but the new programs will take time to become operational. “I do think we will see a bottom in 2009 and by the end of this year we will start to see the beginning of a recovery. But it will be a slow recovery because of the significant overhang of empty houses for sale,” Crowe said. Moody’s economy.com believes housing will hit bottom in 2009. Kiplinger magazine is calling for a secondhalf bottom, but also a good amount of pain before getting there. Let us all hope they are correct on the ending of the housing crisis soon, said Chow. How Trade Show Executive Magazine’s Trending & Spending Was Compiled Trade Show Executive Magazine’s Trending & Spending Forecast aggregates information from numerous sources: government and business reports; interviews with industry experts and economists; and the TSE monthly poll of its 20-member Economic Forecasting Board. Unbiased, reliable data—whether positive or negative—is the foundation of solid business planning. TSE Continued on page 16 Trade Show Executive’s Trending & Spending Forecast Fig. V: Sector Performance Best Performing Sectors • Hospitality • Transportation • Medical Mixed Performance • Business Services • Government • Communications • Sporting Goods • Entertainment • Technology Sectors under pressure • Apparel • Food • Automotive • Manufacturing • Construction • Retail Fig. VI: Economic Indicators Consumer Confidence fell dramatically in February to 25 (1985 = 100), an all-time low. Concern over earnings and worsening business conditions further sapped confidence. Corporate Profits were weak, taking a toll on the stock market. GDP, the economy’s broadest measure of growth, fell at an annual rate of 3.8% in the Fourth Quarter of 2008, the biggest quarterly slowdown in 26 years. Housing Starts fell 16.8% in January below revised December 2008 estimates. Industrial Production fell 1.8% in January and 10% below its year-earlier level. Inflation increased 0.3% in January after declining in each of the three previous months, according to the Consumer Price Index. The energy component climbed 1.7% in January, the first increase in six months, but still 31.4% below its peak in July 2008. Interest Rates [the Federal Funds Rate, which is the interest rate at which banks and other depository institutions lend money to each other] remained at 0.25 compared to 3.0 a year ago. Job Losses of 598,000 in January impacted nearly all major industry sectors. Payroll employment has declined by 3.6 million since the recession began in December 2007; about one-half of this decline occurred in the past three months. Manufacturing failed to grow in February for the 13th consecutive month. None of the 18 manufacturing industries reported growth. Retail Sales jumped 1% in January, reversing a six-month declining trend and defying economists’ expectations by posting the biggest increase in 14 months. Unemployment increased from 7.2% to 7.6% Unemployment has risen by 2.7 percentage points since the start of the recession in December 2007. Sources: U.S. Department of Labor, Bureau of Labor Statistics; The Conference Board; The Institute for Supply Management (ISM); U.S. Commerce Department www.TradeShowExecutive.com Trade Show Executive March 2009 15
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TIM LESMEISTER - Trade Show Executive

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