This is a post from Alex Carrick's blog that covers the Canadian construction industry.

Since 1985, Mr. Carrick has held the position of Canadian Chief Economist with Reed Construction Data's CanaData, the leading supplier of statistics and forecasting information for the Canadian construction industry.

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Construction Industry Forecasts

Notes from Alex Carrick - Apr 12, 2009

Alex Carrick
The Economic Crisis Six Months Later and the Role of Leadership

Is President Obama taking on too much? Yes, but this is a complex issue with nuanced levels of significance. Never mind foreign trouble spots like Afghanistan, North Korea and the Israeli-Palestinian conflict. And set aside the issue of expanding health care for the moment. Let’s just look at the economy.

The current world recession that began in the United States had several epicentres – the collapse of Bear Stearns, the peak in commodity prices last July, the bankruptcy of Lehman Brothers and the steep slide in stock markets in late September. The latter was the latest of these events and it occurred six months ago.

What is most important in an economic crisis? To get from the moment of most despair to several paces down the road. And then to the other side. What do people want from their leaders at such a time? They want action.

The Conservative minority government in Canada found this out late in 2008 when it failed to recognize the anxiety that was building up across the nation. The price to be paid was a near loss of power to a coalition government of opposition parties.

What must a leader do in a time of crisis? Be responsive and be pro-active. If necessary, cajole those who would stand in the way of what is perceived to be forward thinking. And prepare everyone for the changes that are coming. There are other weapons in a leader’s arsenal, such as “moral suasion” and “jaw-boning” (i.e., verbal arm twisting in both cases), but these are often left to be used by central bankers.

The Importance of the Passage of Time

Half a year has now transpired from the extremes of the financial crisis and the biggest losses in equity values. Money has been advanced and promises have been made to restore the quality of assets held by the banks. There is evidence of growing confidence in financial institutions. Stock market investments are starting to look a little more attractive again.

 

But the fallout from financial sector woes has not been the only unpalatable dish set out on this smorgasbord of difficulties. There have also been the problems of the auto sector, finding most expression in the potential failures of the Detroit Two, General Motors and Chrysler.

Again, the passage of time has played a key role. Allowing bankruptcy of either firm seemed inconceivable early on. Now it seems a more than reasonable means to achieve a desirable end. At the least, its prospect is helping concerned parties – management, labour leaders and bondholders alike – to focus on concessions and solutions. And the public has been mentally prepared for such an eventuality.

Manufacturing jobs in richer nations, with the U.S. in the forefront, are disappearing regardless. The only way that this will not continue to happen is if the value of the U.S. dollar sinks. Even high-tech jobs in alternative energy areas, such as wind and solar, will eventually see components production outsourced to low-cost labour in emerging nations.

The Third Leg of the Stool – Fiscal Stimulus and Infrastructure

Then there is the third leg of the stool that President Obama keeps referring to. This is the stimulus package comprised of some tax cuts, but mainly massive spending on infrastructure. Canada and many other nations have also committed to similar initiatives.

This is the area of government action that is most important for the construction industry. Will all the stimulus money actually be spent? Will it be needed? Governments have a history of coming to the party late. By the time, public money is flowing through the pipeline, the private sector has started to “boogie” once again.

I keep reading that Japan is the example of the dangers in halting stimulus spending too early. Japan slipped into another 15 years of economic inertia after interest rates were raised too quickly coming out of an office-building bust in the mid-1990s.

This overlooks the fact that Japan’s economy is not a chrysanthemum-to-chrysanthemum comparison with North America or Europe. According to almost any measure – inter-corporate ownership, management accountability, mergers and acquisitions, import access, foreign listings on the domestic stock exchange, labour mobility and immigration – Japan comes up short on flexibility. Give western-style open economies half a chance and they will come roaring back.

A lot of the planned infrastructure spending has merit on its own terms – to improve the capital stock of public assets and to make necessary health and safety repairs. But it will be interesting to see in a couple of years’ time whether or not much of the hype will turn out to have been mainly talk.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News. Mr. Carrick also has a lifestyle blog that can be reached by clicking here.


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Member Comments

Posted by Razoir
04/22/2009
I'm also thankful that Canada hasn't shown such "leadership" as Obama has. The numbers are simply staggering. George Bush spent like a drunken sailor but after Obama pooh-poohed the Republicans for a 400 billion dollar shortfall, it seems incredible that anyone would stand still for 4,000 billion. Oh, I forgot...Obama just demanded his staff cut a pissant $100 million from their budgets.
Posted by marcus
04/22/2009
Yes, the amount of money that the Obama administration is spending (borrowing) terrifies me, too, and the inevitable consequencies of it. At least our current administration has done a good job being proactive & preparing Canada over the last few years to position us as one of the most stable economies in the world (see IMF report today & listen to economists over the last 8 months). Did the Opposition last Fall get frustrated that they didn't get voted back in to resume their assumed "divine" right to govern with their typical urban-undemocratic-majority and did Harper become too principled at the same (wrong) time? Sure, but the Governor General proved her worth for the first time in many generations. Still looking forward to those public funding cuts to political parties.
Posted by Razoir
04/15/2009
I have observed in President Obama a man who says much but does little beyond serving his personal agenda. The stimulus package is merely a way to suck investment from the future and transplant it into the present, hardly an act of great leadership. The stimulus package is just a hodgepodge of pork, with only some of the money going to infrastructure. Will it create confidence among the American people? Those who voted for Obama will be glowing with confidence.
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Read Other Recent Alex Carrick Posts

10/12 - Latest Economic Nuggets: Mid-October 2012
10/04 - Auto Sales Set a Blistering Pace in the U.S. and Canada
09/18 - Canada’s Energy Future is Assured, Right? Think Again
09/14 - Latest Economic Nuggets: Mid-September 2012
09/06 - Auto Sector Labor Relations will Play a Role in Construction Outlook
08/30 - Raucous Behavior in the Party Room Next Door
08/13 - Latest Economic Nuggets: Mid-August 2012
07/31 - Canada’s GDP Advanced a Timid 0.1% in May but Support Will Come from Better U.S. Home Prices
07/19 - Finding the Pearls in the Latest U.S. and Canadian Economic News
07/13 - Latest Economic Nuggets: Mid-July 2012
07/04 - U.S. Auto Sales Continue Bullish While Canadian Incomes Languish
06/28 - Three Pivot Points for the World Economy - U.S. Housing, Europe’s Conundrum and Oil Prices
06/14 - Economic Nuggets – June 15, 2012
06/06 - Canada’s First Quarter GDP Growth Met Expectations, But What Comes Next?
05/30 - Ontario has a Backbone of Strength for the Decade Ahead
05/14 - Economic Nuggets - May 15, 2012
05/11 - Canada Rode a Second Consecutive Month of Strong Job Gains in April
05/04 - U.S. Employment Rose by a Mediocre 115,000 in April
04/27 - U.S. GDP +2.2% in Q1 2012 and Alberta led Canadian Provinces in 2011
04/18 - U.S. Inflation Low in March; Canada’s Central Bank Looking to Raise Rates

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