Allan Lutes had always shown an interest in economics and its impact on his business, Alpha Remodeling in Ann Arbor, Mich. But when Lutes went looking for data that would help him forecast the economy on a regional scale, he couldn't find any usable tools. So he created one.
Lutes formed an easy-to-use forecasting model three years ago after conducting some research and consulting with several industry economists. The end result is a five-part forecasting tool that most remodelers — even small companies — can adapt to their own markets. “The goal was to create an economic model that you can update in about 15 minutes every month,” Lutes says.
Using statistics from public Web sites, including the U.S. Census Bureau and the U.S. Department of Labor, Lutes created a spreadsheet to help predict the future of his region's remodeling market. “You'd be amazed at how many statistics are out there once you know where to look,” he says.
The five indicators — job growth, housing turnover, residential home sales, consumer confidence, and single-family new home permits — give remodelers a snapshot of where their market lies on the continuum of recession and growth. For example, if the average time it takes to sell a home is short, the remodeling market is likely to be more favorable.
Lutes' model also takes into consideration seasonal ups and downs. By looking at the five indicators and how the numbers change over time, a pattern or trend often emerges. Lutes also created a graphic that illustrates trailing averages for each indicator, so he can quickly and easily assess his market over a period of several months or years. “You can't depend on any one indicator,” Lutes says. “But you can look at the compilation of all the indicators to get a picture of what's happening in your market.”
Once you have concrete numbers, you can make changes in your business accordingly, such as adding more employees in a booming market, or downsizing staff in a troubled one. “If you have an idea of what's coming down the road, you can make better decisions,” says Lutes, who found out firsthand how useful the forecasting model could be when the Michigan housing market, which is heavily affected by the auto industry, faltered in recent years. “If your market is changing and you don't change your staffing, it will have an impact on your profitability,” he adds.
For Alpha Remodeling to remain successful, Lutes had to make internal changes in light of his market's recession, including creating a small-projects division. And while the company is not on a growth track, it's holding steady as a profitable company in a difficult market. “Any business that's bigger than a mom-and-pop operation should be looking at these indicators,” Lutes says. “You don't need a degree in economics to understand this.”
In fact, Lutes is willing to help other remodelers create their own forecasting tools. You can reach him via e-mail at alutes@alpharemodeling.com.
Top Sites for StatsUnited States Bureau of Labor Statistics:
www.bls.gov/data/home.htm
United States Census Bureau:
www.census.gov/const/www/C40/table3.html#monthly
Federal Reserve Economic Data:
http://research.stlouisfed.org/fred2/
National Association of Realtors:
www.realtor.org/research/index.html