Initial jump in GDP growth will ebb

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initial jump in gdp growth will ebb

Insight and Analysis of Construction Industry Trends

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Jim Haughey

RCD Chief Economist

Oct 30, 2009

Ahead, GDP growth will dip to the 1.5-2.0% range for 3-4 quarters and then rise back to a 3% pace at the end of 2011. As always, the growth pace will be erratic, depending heavily on the extent and timing of new temporary buying subsidies provided by Washington. An extension of the homebuyer tax credit is now being seriously considered. Less certain are proposals for another boost to auto sales and a credit for small business investments. But the GDP growth rate will average subpar for the next two years. There are too many lingering problems from the 2008 credit freeze to permit a quick return to average or better economic growth.

These are the consequences for construction. Both housing and public non-building facilities are now in favor in Washington. They are among the select few vehicles chosen to distribute federal pump priming money. Hence, these construction sectors will be relatively strong in the next few years. Although housing will stall, possibly even dip a little this quarter, it will be the fastest growing construction market in the next two years. A lot of money has been allocated to public non-building facilities and more funds are likely. Little has been spent yet but spending will progressively expand and keep this sector growing in the early part of the recovery when it usually sinks.

The balance of construction will have to relay on spill over spending elsewhere in the economy although public and institutional building do have some stimulus funds in the pipeline for 2010-12. Developer financed construction will feel the most restraint from the sluggish economic recovery because real estate investors are waiting for their current space surplus to be rented before they will commit to built new space. Among commercial markets, retail will get the quickest and largest boost from an expanding economy because a large share of the pump priming funds will be initially directed to consumers either as buying subsidies or income support such as extended unemployment benefits or social security bonus checks.

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