Unlike many exotic financial tools, surety bonds are a product that many people will likely deal with at one point or another. Whether you are a home owner or run a small business, there is a good chance that you have requested or provided a surety bond at one time or another. Generally speaking, they are accepted as a wise investment in a variety of scenarios. But with the economy seemingly in flux and an election on the horizon, will bonds remain good value for money?
Consistent demand for surety bonds
In short, the need for surety bonds is likely to remain fairly consistent - especially in these down economic times, when so many people are defaulting or unable to live up to a contract. Establishing a surety bond confirms that a company is reliable and trustworthy and so it endures as an excellent stamp of approval for any business. In addition, getting bonded is a relatively straightforward and inexpensive process, especially in comparison to insurance premiums which can quickly add up. None of these salient advantages to surety bonds are likely to change in the near future.
The major market to embrace surety bonds though is the construction industry. Quite wisely, in advance of paying a substantial fee, it is common for home-buyers to demand a bond from the contractor. Even the most hard-working and straight laced contractor is reliant on sub-contractors to ensure that a project comes in on time and on budget. Of course, this means that there is significant margin for error since the more parties involved, the more likely one of them might be unable to fulfill their end of the contract. Receipt of a surety bond is a sure way for the home-owner to protect themselves against delays or sub-standard work.
Although the surety bonds market largely ebbs and flows with the property market, it is also worth remembering that these bonds are used in any number of areas. Just this month, the Rhode Island General Assembly passed legislation that would permit employers to pay their workers less frequently than weekly, with a number of provisions attached including a substantial surety bond. Similarly, in New Jersey, landfills from a failed development project are finally being cleaned up thanks to a surety bond that was posted. The uses of surety bonds are truly wide and varied, and the increasingly make wise economic sense.
The inextricable link to economic growth
However, the extent to which surety bonds will continue to represent value for money will depend on how the US economy performs. Sharper growth will likely lead to better bond purchase rates. All of which leads to the million dollar question of what the economic future holds in this election year?
No doubt there are prophets predicting a wide spectrum of outcomes. However, figures released at the beginning of June are revealing and provide us with a rather downbeat indicator of things to come. The US Labor Department announced that only 69,000 jobs were created in May, the lowest figures in 2012. In addition, the unemployment rate rose for the first time in eleven months. It may have been a rise of just 0.1%, but there will be fears that it will spark a dangerous trend. President Obama will be acutely aware that no president has sought re-election with such a high unemployment rate since the Great Depression. Of course, these domestic statistics come amid deep economic problems across the pond in Europe. Nearly half of the 17 countries in the Eurozone find themselves in recession. Even the Asian giant China is showing signs of a slowdown. And former French president Nicholas Sarkozy’s surprise ousting this last month hints that there is widespread discontentment in the European countries, and suggest that the people are increasingly taking out their frustration through elections. All of this complicates the chances of pulling into clearer economic and financial waters.
For the surety bonds market, perhaps the most significant statistic to come out of the recent results is the 28,000 job cuts in the construction market, the steepest drop in two years. It is an indicator that the housing market is unlikely to boom in the near future.
Scott is a freelance writer on a variety of topics including surety bonds. When he is not writing he is hiking in the mountains of upstate New York.