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What Japanese maple trees tell us about the US economy

November 19, 2013
November 19, 2013

If there’s one sign of the improving US housing market to pluck from Home Depot’s third quarter earnings, it’s the Japanese maple.

The home improvement retailer has long sold trees, typically for between $20 and $30, but recently started trialling sales of 100-gallon Japanese maples for around $3,000. On the company’s conference call, Home Depot’s executive vice-president of merchandising Craig Menear said the tree, along with other higher-end items like LED light bulbs and lithium-ion battery powered tools, indicated that “there are customers willing to step up.”

The telling takeaway, along with Home Depot’s better-than-expected earnings, could hint at what’s in store for US housing. The company’s third quarter profit was up 43% to $1.35 billion, higher than Wall Street expected, and the company raised its fourth quarter forecast. The good tidings reflect surging home prices, even though new housing construction continues to underwhelm.

On the conference call, CEO Frank Blake said that strong home prices do more for Home Depot’s bottom line than new construction. “We’ve long thought that one of the key determinants of our business is, do people feel good about investing in their house because they’re going to see pricing appreciation in their home, and that continues to move forward at a pretty good pace,” he said.

It’s one reason to be hopeful that the recent run-up in US housing prices, which have risen nearly 13% over the past year, is here to stay. If so, it would also be a good omen for sluggish consumer spending and the broader US recovery.

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