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 - Jul 18, 2011

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Congress prepares to postpone resolving the deficit crisis assuring an extended period of subpar eco
Jim Haughey, RCD Chief Economist

The Senate plan provides an eighteen month reprieve from the risk of an abrupt 40% slash in federal spending and possibly an accompanying bond default. If prolonged, a bond default could yield a credit freeze similar to September 2008. An immediate deep recession would likely occur if the debt limit were not raised within a few weeks.

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The plan is a brilliant political solution but a financial and economic disaster. The two year old economic recovery is proceeding at a subpar pace in part because of lack of buyer confidence about taxes and other mandated costs as well as sustainable level of public spending. Depressed confidence causes private spending to be delayed, especially for capital projects, including construction. The delay fails to remove the uncertainty. Everyone will continue to be concerned about another debt ceiling impasse and possible ensuing recession.  The half of the taxpayers that pay (net) the IRS every year and business managers will still be concerned about the deficit problem being resolved with a large, abrupt tax increase. The other half of taxpayers who pay (net) the IRS nothing or get a credit plus government contractors and entitlement recipients will still be concerned with the deficit problem being resolved with a large abrupt slash in their income.

Postponing the final resolution of the deficit problem will allow the problem to get worse. The accumulated debt continues to expand faster than GDP even though tax receipts are rising, the emergency stimulus spending is being phased out and Congress has stopped adding new spending programs. Eighteen months ahead it will be an uglier problem to solve.

 


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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
07/12 - 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
06/15 - Cautious spending threatens to delay construction recovery
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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