Construction Industry Forecasts

Nothing being leaked from the negotiations suggests that the comfortable world of federal employees and check recipients is about the change in four weeks. There are no leaks about immediate massive layoffs, asset sales, service cuts or employee or entitlement benefits reductions. Unlike many state and local governments and many European governments, Washington has not accepted that creditors and taxpayers can force it to live within its means. Most of the energy expended in the negotiations is to find smoke and mirrors to present the illusion that the problem is solved.

Nonetheless the deal will include some near term (not 2011) spending cuts or tax increases which could as much as $50 Billion a year The most likely items for this package are the elimination of investment tax deductions for oil and gas companies, the redefinition of the income of hedge fund managers as ordinary income to be taxed at standard tax rates and slower growth in social security benefits by using a different version of the Consumer Price Index which has less inflation bias.

The remaining $150-350 Billion a year in tax increases or spending cuts will be undefined changes to be made by future Congresses. The accumulated debt will expand less quickly with this type of deal in place.  But is will still grow by as much as $1 Trillion a year in the next few years. The constraint on long term economic growth will remain so an even bigger debt/spending problem will have to be faced in 2013.

The construction consequence of subpar economic growth is a magnified slowdown in facility investment until existing surplus buildings are facilities are absorbed.