Construction Industry Forecasts

Early reports for June strongly suggest that the spring stall in the economy is ending. Better results have been reported late in the month for jobs, inflation, consumer spending, equity prices and factory production. Gasoline prices have retreated about $0.40/gal. and resolution of the Greek debt crisis passed an important hurdle when the European Central Bank agreed to make another installment on the loan to Greece. Caution: economic conditions have improved from briefly neutral (possibly slightly negative) back to subpar growth. This reinstates the US GDP outlook in place at the beginning of then year but with a 3-4 month delay. GDP growth will average at most 3.0% through the end of 2012. The construction spending recovery is delayed until midyear.  Construction spending will decline slightly again for the full year 2011 vs. 2010 then improve sharply in 2012. The revised Reed Construction Data forecast will be posted shortly.

What is causing the delay in the economic and construction recoveries?  There are unique problems in housing – the huge oversupply of empty homes – and in public construction – the end of stimulus spending and deficit forced spending cuts. This is on top of the general cause – uncertainty about healthcare, finance and labor-management rules and continued, almost daily, calls by President Obama and congressional democrats for higher taxes on business and high income households. Business managers and high income consumers have to cautiously assume the worst outcome and protect themselves by deferring spending.

These uncertainties will gradually be resolved by compromises or the next election will give one side or the other enough votes to resolve them without compromise. So we will muddle through the rest of 2011 and 2012 with enough economic growth to initiate and sustain a modest construction recovery.