Two Reasons This Recovery Is Real

More landscape contractors and equipment dealers have been telling us that it's starting to feel like the good old days again. This year's strong first-half showing is at least partially attributable to the tremendous amount of rain which much of the eastern half of the country has received. But there are a couple of additional reasons why things are picking up.

1. Building is back. New construction is looking pretty good. According to U.S. Census Bureau data for May, total construction spending was up 5.4% from one year ago. Non-residential was actually down a tad (2.9%), although the lodging sector posted a solid gain of 18.3%. That's good news because hotels and resorts invest heavily in landscaping services.

The residential sector, though, is what matters most to the majority of contractors and dealers. There's really good news here as May spending was up 22.7% from a year ago. Furthermore, according to the National Association of Homebuilders (NAHB), new-home sales in May jumped 2.1% from April. Seems modest, but the past several months have posted increase after increase, collectively spawning the fastest growth pace since July 2008.

Perhaps the biggest challenge in the housing market now is supply meeting pent-up demand, according to the National Association of Realtors (NAR). Existing-home sales in May were 12.9% higher than a year ago. As significant growth in the number of households entering the housing market continues, NAR says new-home construction must ramp up by an additional 50% in order to grow the number of new homes available.

2. Discretionary income climbing. This dwindling supply of homes has led to double-digit price-growth rates across much of the country. That has led to significant gains in home equity values. Coupled with a strong stock market and steadily rising disposable income levels, consumers and businesses have more money to spend on landscaping-related services and equipment.

Market research firms like IBISWorld are forecasting accelerated growth over the next five years for the landscaping industry. We're not talking anything crazy—just a nice, controlled 3-4% per year. So contractors and dealers will still have to get a bit aggressive and/or creative in order to capitalize.

Many contractors have come to realize the benefits of having a mix of both installation and maintenance business. Georgia contractor Brad Terrell is a good example. Dealers have come to realize the benefits of smarter, oftentimes more conservative inventory management with additional focus on efficient parts and service operations. Some, like Weyers Equipment, have also found success in new product lines such as hardscaping.

As the Green Industry continues along its maturity phase, dealers and contractors must continue to work together to become more efficient and profitable. It might feel a little bit like the good old days used to, but we sure can't operate the way we did back then.