RSSRecession continues
The 2007-08 recession is developing very similarly to the last recession from winter to summer in 2000-01. That recession was two quarter of modest decline alternating with two quarters of subpar growth – a 0.6% annual growth pace over four quarters. Here we go again. The economy grew at a 0.6% pace in the last two quarters, will probably decline as much as 1% this quarter and then rise at a close to 2% pace in the next quarter.
A deep recession in a single large market dragged down the economy in both periods. It was electronics seven years ago and housing today. Both times there was enough strength in the export and investment sectors of the economy to keep the overall recession short and mild.
The 0.6% growth rate reported for the winter quarter is misleading. Subtracting the change in inventory, final sales increased 2.4% in the fall and then dropped 0.2% in the winter, the first decline since 2001. Only an unwanted accumulation of inventory prevented a GDP decline last quarter. This is unlikely to happen this quarter. Manufacturing production and imports have already been cut in April and will be cut more in May and June.
The consequence for construction is less demand for building space and facilities, partly offset by marginally lower credit, material and labor costs. Housing will feel the least impact because inventory and pricing changes will dominate starts trends. Commercial development growth will pause with concern about the job count tumbling and reducing space demand into the summer. Public project activity will dip slightly as weakening tax receipts depress public budget reserves.
