This is a post from Jim Haughey's blog that covers the US construction industry.

Jim Haughey is the Chief Economist for Reed Construction Data and has over thirty years experience as a business economist, including twenty years monitoring the construction market. He has a Ph.D. degree in economics from the University of Michigan and has previously taught at the University of Michigan, Ohio University, Michigan State University and the University of Massachusetts.

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Construction Industry Forecasts

Notes from Jim Haughey - Jul 29, 2011

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Sour economic growth report threatens construction recovery
Jim Haughey, RCD Chief Economist

Construction was a positive contributor to spring GDP growth with a nominal gain for housing and larger gain for structures. This is not a conflict with the reported small decline in 2nd quarter construction spending.  The GDP accounts include items not in the Census Bureau construction spending report as well as fees for the sale and management of buildings and facilities.

It is likely that the spring quarter ended on the upswing which will provide some growth momentum for the summer quarter.  Nonetheless, earlier estimates of GDP growth in the 2.5% range in the second half of the year may not now be attainable given the heightened caution set off by the Washington standoff on resolving the deficit-debt limit issue.

The construction starts and spending outlooks through 2012 will probably need to be edged lower again when the June spending estimates is released on Monday.  The downward revision for the second half of the year could be substantial if the debt limit forces some checks not to be written next week. But an agreement of any sort that does not stop the check writing machines will permit a more modest downgrade in the construction outlook. However, this scenario only postpones facing the debt problem for a year or two.

Which construction projects have the most risk? Obviously, federally funded projects have the most risk. Shutdowns will be immediate if the debt limit is not raised nest week.  This is very unlikely.  The shutdown last week of federally funded airport construction when Congress could not agree on a funding renewal plan provides a preview of this unlikely disaster. Far more likely with a debt limit increase federal construction spending cutbacks will be gradual as Congress refuses to raise the federal construction budget and very likely makes some cuts. Projects scheduled to start soon would be hit hardest.

State and local construction spending is next on the high risk list because these government would get no increase in federal grants.  Instead, small cutbacks are likely to trim the federal deficit.  Many state and local governments would have to trim construction spending from their own funds as a weaker than expected economy both reduces their expected tax receipts and raises their unavoidable social welfare and income support expenses.

Private construction spending would edge lower in a weaker than expected economy.  Developers would adjust to less optimistic operating profit prospects and prospective home buyers would become more cautious as they downgrade their expectations for income growth and income security. Within the private sector, the biggest negative impact would be on “for lease” commercial projects.  The smallest negative impact would be on facilities and institutional buildings because these project were generally not started until the financing was on hand.

 


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Read Other Recent Jim Haughey Posts

08/15 - Contractor Survey: Work backlog rises in 2nd Q but may fall in the summer
08/09 - Modest construction recovery will be supported by two more years of cheap credit
07/27 - Worry about the deficit not the debt limit
07/27 - Worry about the deficit not the debt limit
07/27 - Worry about the deficit not the debt limit
07/19 - Housing starts rebound.6% in June after two weak months
07/18 - Congress prepares to postpone resolving the deficit crisis assuring an extended period of subpar eco
07/12 - House Transportation Committee proposes to keep federal highway funding at fuel tax receipt level
07/09 - Don’t count on debt limit deal to restart sustained high economic growth
07/08 - Contractors cut 9,000 jobs in June
07/05 - The cost and frustration of selling a home contributes to the delayed housing recovery
07/05 - May construction spending down 0.6%; recovery still on hold
07/01 - FAA stops works on federally funded runway and control tower projects
06/21 - It is not more jobs that will quicken the economic recovery
06/16 - Mays’ 3.5% gain in housing starts does not signal a housing recovery immediately ahead
06/15 - Cautious spending threatens to delay construction recovery
06/10 - Economic and construction recoveries will be subpar for at least another year
06/09 - NYC construction unions may agree to drop expensive work rules to spur more work
06/04 - Contractors add 2,000 jobs in May; overall job gain disappointingly low
05/25 - No consensus for 2nd quarter GDP growth

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