I find that participating in a resort HOA finance committee is an interesting way to learn about the economic realities away from the media-centers of Los Angeles and New York. My particular association is outside of Salt Lake City, and while it's definitely a resort setting, it's close enough to town that it shares many of the same economic realities as the rest of the area. Salt Lake City is -- for a large city -- about as far away from Los Angeles or New York as you can get in terms of culture, lifestyle and overall outlook. Looking at the area gives me a great alternate viewpoint, which has proven beneficial in the past.
Our association is a microcosm of the economy as a whole. We buy food, deal with constructions and maintenance, hire workers, pay energy bills, deal with property taxes, depend on revenues from customers, set fees and prices, and even have to use a lawyer or two.
There are a few key learnings.
The Government is Full of Shit
Anybody who believes that the real cost of living is increasing at only 2 to 3 percent every year is simply blind. You already know this if you read Shadow Government Statistics, which I wholeheartely recommend. For our HOA the reality is simple. We're keeping our budget flat for the year, but only because we got a favorable tax ruling partially rolling back last years' more than doubling, and because our investment manager got a bit of an extra windfall on some of our reserve funds last year. Had it not been for those two one-time items, our budget would be up 5 to 6 percent, which is roughly where Shadowstats says inflation really is.
Labor Costs
Those are the big issue this year. The employment situation in Salt Lake is quite good right now. While being a resort allows us to offer some benefits (ski passes, etc.) that aren't available to other employers, it also means we're a pretty long commute for most of the people who would work for us, with mountain roads and winter travel part of the bargain. For the vast bulk of our employees, this has become a negative tradeoff. They'd rather work in the Salt Lake valley and pay for their own skiing and other minor "resort" benefits.
Thus, our labor costs are up about 5%, and we're still strugging. Above and beyond the normal "labor" costs we've had to add extra dollars for employee recognition and other fringe benefits to make it possible to hire people.
We have, for the first time in many years, been able to keep benefits cost increases down around 3%, but much of this is due to the fact that a significant percentage of health insurance costs are passed along to the employees.
And that's not all. The externally contracted work that is done for us will increase by as much as 40%! Some of this is due to our contractors' labor costs, and much of the rest is energy costs. More and more, we are finding that contractors are tacking on extra fuel charges due to the costs of getting to our location.
Stuff
The large capital stuff is going down or staying flat. New appliances, TVs for the condos, etc.
The small stuff: food, office supplies, linens, and all the other things that you just can't live without are getting more expensive. 5-10% increases across the board. In the case of our hospitality bar (which includes wine) the costs are up 20% or more.
Energy
Our biggest cost is natural gas, which fortunately has dropped since the horrible spot market we faced last year. We have locked in decent (but not great) prices that will ensure stability for a few years.
But energy costs creep in virtually everyplace else. As noted, contractors are hitting us with fuel surcharges. So are all delivery companies (UPS, Fedex, etc.). Part of the labor cost -- as noted above -- is due to the less desirable long commute.
Travel/Hospitality
This is where much of the income side comes from. In the past year, room rate increases of as much as 10% have been instituted and have stuck pretty well despite a pretty poor ski season and some aggressive discounting during the slow season. In addition, the ski area management (whose land we are surrounded by) has imposed a daily "resort charge" of $5 per room per day in the summer and $10 in the winter. This fee -- which theoretically is to cover such things as free wireless internet everywhere, but which is really just a price increase under a different name -- is also sticking.
Restaurant income is also up big, despite the mediocre ski season. Again, price increases have stuck.
Overall
Overall, what I see in virtually ever line item of our budget is that price increases are sticking. Our workers are demanding more and getting it. Our suppliers are demanding more and getting it. We are paying more for the stuff we need and use every day. And of course, we're demanding more from our customers and we're getting it.
The lesson I take from this is the one that the Fed seems to be telegraphing fairly regularly. Regardless of what the "official" government numbers say, inflation in the form of pervasive, across-the-board price increases is out there lurking. This is going to put limits on the Fed's ability to inject further liquidity to the economy. It's going to put limits on the government's ability to deal effectively with China because the big "made in China" items are the only ones that aren't going up in price, and they can't afford to add price increases to those into the mix.
Above all, this suggests caution with regards to anything that could be negatively impacted by increasing inflation.
-btc
