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 - May 16, 2011

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Debt limit reached; public construction funding cuts will follow
Jim Haughey, RCD Chief Economist

Current spending programs can no longer be funded with a ten year budget plan that promises undefined savings in healthcare costs or unspecified efficiency improvements. President Obama now faces a hard cash flow constraint. Spending cuts have to be real and immediate or the higher debt limit will quickly be reached forcing a second round debt limit/spending cut debate with now more skeptical opponents.

What types of public construction projects are at risk for freezes, cutbacks or elimination?

The high risk group includes rail, alternative energy and grants to states and local governments for affordable housing construction and renovation.  These are not traditional public works projects. Major spending in each of these areas began quite recently. Each of these programs already has many opponents who want to cancel them entirely.  Each of these programs is accused of being wastefully managed, being a political payoff to special interest groups and creating buildings or facilities that operate at a loss and have to be subsidized by taxpayers.

The low risk group includes highway, water/sewer and conservation projects.  These state and municipal facilities serve everyone and do not require continuing federal subsidies for operation. Nonetheless, future funding will be less than the President’s current budget plans.

The recent boom in military construction is already winding down. The debt limit constraint will prevent any attempt to continue military funding at the current level. Spending for federal office and lab projects, both new and renovation got a boost from the now ending stimulus plan. The impact from the end of federal stimulus funding will be aggravated by cuts in federal office spaced requirements with a leaner staff.

If Congress makes a large cut in federal spending the indirect impact on construction will be bigger than the direct impacts outlined above. The recovery in private construction will be weakened by slower GDP growth if federal fiscal policy abruptly turns restrictive.



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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
06/15 - 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

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