Confidence rise signals economic recovery soon ahead

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confidence rise signals economic recovery soon ahead

Insight and Analysis of Construction Industry Trends

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Jim Haughey

RCD Chief Economist

May 26, 2009

Mays’ 54.9 confidence level is below the lowest point in the last recession. Net, consumers believe that jobs and income will continue to decline. Confidence is still at a deep recession level. The recession will continue at least three more months. Production will be below consumption as inventories are reduced resulting in further job and income losses. Construction spending will decline until yearend although the housing sector will turn up at yearend.

Surplus inventory, building space and facility capacity are the major restraints on confidence. The inventory surplus for goods and homes is being quickly reduced – this accounts for most of the ongoing job losses – but the surplus is still expanding for nonresidential space and facility capacity.

Expectations that the stimulus plan spending will bring more jobs and income is a major contributor to the improvement expected six months ahead in consumers’ personal finances. This is true even though only a trivial amount of stimulus funds have been spent so far. Expect a pause in the improvement or a pullback in confidence if stimulus plan check writing does not pickup substantially in the summer.

There is still time for something to go wrong and push economic recovery back a few months. The Reed Construction Data forecast remains for an end of summer turnaround in the economy and an end of the year turnaround in construction spending. The major risks for delay are lawsuits blocking the confiscation of Chrysler and GM by the federal government and the UAW or a surge in credit costs as foreign investors realize that US Treasury Bills are no longer a AAA investment.

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