The Reed Construction Data forecast through 2010 is the near the consensus as we perceive it. For the economy, there will be burst of growth in the summer overflowing partially into the fall from recent federal pump priming and the resumption of expansion in the housing and manufacturing markets.  This will be followed by continuing but more sluggish growth next year. More markets will progressively turnabout from decline to growth but overall economic growth will be limited by lingering recession level spending confidence, interest rates ebbing slightly higher and investor caution as long as the battle in Washington remains unresolved.

For construction, this means a little more decline in construction spending and project starts in the next six months followed by cautious expansion in an economy that is expanding but is not recording the usual above average growth at this stage of the business cycle. Materials and equipment sales will resume growing next year but suppliers will be operating with substantial excess capacity. As a result, materials price inflation for domestically traded materials (also construction wages) will be positive but very low. Nonetheless, expect 5% plus overall materials cost inflation due to a declining dollar and more rapid economic recovery in other countries.

For 2011 and beyond, the Reed Construction Data forecast tentatively assumes that the President’s plans will be largely rejected.  He will get some of his goals if he is willing to comprise but not enough to cause major changes in the organization of the energy and healthcare markets or the scale of the federal budget. The economic disruption will be at the high end of the normal range. It will be enough to prevent a sustained period of 4% plus GDP growth but not enough to prevent economic growth rising to or slightly above 3%. For construction this means acceleration in spending and starts growth in line with expanding space and facility demand and the gradual absorption of current excesses.

There is a high probability for two very different spending tracks. If Congress gives Obama most of what he wants, spending will surge for up to a year, beginning late next year and then collapse late in 2011 or early in 2012 under the weight of rising prices and credit costs and falling spending confidence.  If Obama gets nothing, spending growth will move beyond 3% plus in 2011-12. The impact on construction and all capital goods industries will be magnified.

We will know more about 2011 and beyond growth prospects in a few months. There will be a showdown vote on healthcare or the proposal will fade away as the Clinton plan did 15 years ago. An even sooner signal may come from the November elections for Governor in New Jersey and Virginia.  These contests are being interpreted as a referendum on Obama.  Currently, the Real Clear Politics consensus of polls puts the Republican candidate ahead by 7 points in New Jersey and 10 points in Virginia. Both states now have Democratic governors.  Today’s Republican lead is upsetting to many Democratic members of Congress who must face centrist electorates in 2010. The current Republican margin may be enough to cost President Obama enough votes to get an uncompromised healthcare plan through Congress.

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