This is a post from Jim Haughey's blog that covers the US construction industry.

Jim Haughey is the Chief Economist for Reed Construction Data and has over thirty years experience as a business economist, including twenty years monitoring the construction market. He has a Ph.D. degree in economics from the University of Michigan and has previously taught at the University of Michigan, Ohio University, Michigan State University and the University of Massachusetts.

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Construction Industry Forecasts

Notes from Jim Haughey - Jun 15, 2011

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Cautious spending threatens to delay construction recovery
Jim Haughey, RCD Chief Economist

Why have people become more cautious about spending?  It is because they are more uncertain than usual about the financial, regulatory and legal environment. Lots of changes are in the wind – both those already enacted but with no final rules yet for implementation as well as changes still in the proposal phase. The uncertainty comes from a clash between the presidents’ call for more taxes, more spending and more complex regulation and the Republicans’ pledge to do exactly the opposite.

Some of the more significant uncertainties include: Will the new healthcare law be implemented or abandoned? Will the Dodd-Frank financial reform law be implemented and what will the rules be? Will taxes be raised substantially on business and high income consumers? How much will federal defense and construction spending be cut? Will there be large cutbacks in social spending?

There are always at least a few changes of this scale being proposed in Washington.  But the pending changes now are causing more caution than usual.  Without a dominant political party in Washington, radical proposals for change can not be readily classified as either nearly certain or improbable.

How negative can a turn to caution be for spending and hiring?  The most illustrative example is the mild recession set off by turn to caution during the buildup before the first Gulf war in the early 1990’s.  The six month buildup was accompanies by fears of high casualties, soaring energy prices and gasoline rationing. These fears reduced spending confidence and set off a short, mild second dip in the recession that had just ended. The spending decline before the war and the spending surge immediately after the very short war are very clear in the historical economic data.

Momentum in the economy turns very slowly. Already, there is evidence of production cuts, unwanted inventory buildup and deferred spending for consumer durables and business equipment. If this persists into the summer it will take at least several more months to stop the slide and return to expanding economic growth. The Reed Construction Data economic and construction outlook still assumes that the recent economic problems are a speed bump, a really big speed bump.



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Read Other Recent Jim Haughey Posts

08/15 - Contractor Survey: Work backlog rises in 2nd Q but may fall in the summer
08/09 - Modest construction recovery will be supported by two more years of cheap credit
07/29 - Sour economic growth report threatens construction recovery
07/27 - Worry about the deficit not the debt limit
07/27 - Worry about the deficit not the debt limit
07/27 - Worry about the deficit not the debt limit
07/19 - Housing starts rebound.6% in June after two weak months
07/18 - Congress prepares to postpone resolving the deficit crisis assuring an extended period of subpar eco
07/12 - House Transportation Committee proposes to keep federal highway funding at fuel tax receipt level
07/09 - Don’t count on debt limit deal to restart sustained high economic growth
07/08 - Contractors cut 9,000 jobs in June
07/05 - The cost and frustration of selling a home contributes to the delayed housing recovery
07/05 - May construction spending down 0.6%; recovery still on hold
07/01 - FAA stops works on federally funded runway and control tower projects
06/21 - It is not more jobs that will quicken the economic recovery
06/16 - Mays’ 3.5% gain in housing starts does not signal a housing recovery immediately ahead
06/10 - Economic and construction recoveries will be subpar for at least another year
06/09 - NYC construction unions may agree to drop expensive work rules to spur more work
06/04 - Contractors add 2,000 jobs in May; overall job gain disappointingly low
05/25 - No consensus for 2nd quarter GDP growth

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