Construction Industry Forecasts

The latest initial jobless claims report from the U.S. Department of Labor contains disturbing news. The number of first-time unemployment insurance applicants has climbed back up to the benchmark 500,000 level.

Half a million initial jobless claims is the level at which the number of people being newly laid off is judged to be equal to the number of people being newly hired. A level significantly below half a million is needed for a strong improvement in total employment in the country.

The initial jobless claims figure fell to 427,000 in early July. That was its low point since the recession kick-off in early 2008. But it was just under 500,000 in the two weekly reports preceding the current one.

Prior to the latest report, one has to look back to mid-November 2009 to find such an elevated figure (i.e., 500,000+).

The jobs recovery has stalled and this will have negative implications in several ways. It will further erode consumer confidence and it will leave residential real estate sales and prices with little forward momentum.

That’s unfortunate, since consumer purchases and housing starts are key parts of the overall economy.

Several factors are contributing to the U.S. economic malaise. Government stimulus money is running out, with Congress unlikely to add funds to the pot. Furthermore, certain incentive programs, such as the homebuyer tax credit, have now run their course.

Tax hikes are likely coming for some individuals at the upper end of the income bracket. New regulations in health care and the financial sector are raising the prospects of higher costs for both businesses and individuals.

Then there are the psychological factors. There was a string of bad news in the second quarter of this year that helped to depress forward-looking sentiment. This included European debt problems, the out-of-control oil leak in the Gulf of Mexico and talk about a possibly slowing Chinese economy.

What is being overlooked is that many of these contentious issues have taken a turn for the better.

BP does appear to have its rogue well under control. Furthermore, the extent of the damage in coastal regions may not be as severe as was feared in worst-case scenarios. Fortunate weather during the hurricane season was a big help.

The European Commission has issued a statement that Greece is making quicker progress in cutting its deficit and imposing structural reforms than was anticipated. Approval for the next round of major loans from the IMF and European Union is virtually assured.

Britain is also making faster strides in reducing its budget shortfall than was first thought likely. A stronger tax revenue base due to improved consumer spending and exports, as well as major cuts to government spending, are providing the answer.

Europe’s leading economy, Germany achieved strong second quarter GDP growth led by export sales. After a drop of 4.7% during the recession, Germany is expected to record a 3% GDP gain this year. Its second quarter was the strongest on record since reunification occurred in 1991.

China isn’t the single source of growth in the Asia Pacific region. Taiwan’s GDP advanced 12.5% in the latest quarter. Singapore is also performing at an exceptional rate, as is India.

Canada has a huge stake in what happens south of the border. Canada’s foreign trade has been stuck at a zero balance, as opposed to the usual strong surplus, for the past year and a half due to the ongoing low level of overall demand from the U.S.

Time heals most wounds. If granted a few further months without too harsh economic news, unlike the last two years, the restorative powers for the U.S. economy will hopefully prove to be effective. The Fed is doing its part to provide a cure, keeping interest rates next to zero.

Alex Carrick