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 22, 2010

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State FY ’11 construction budgets will have to be cut
Jim Haughey, RCD Chief Economist

State budget reserves reached over 11% of annual expenditures before the recession but dropped to an estimated 2.2% at the end of FY ’10, excluding the huge oil tax based reserves in Alaska and Texas. Kansas and Arkansas have no budget reserves.  Connecticut, New Hampshire, Washington and California have negative reserves and need to make immediate spending cuts. Seven more states have budget reserves less than 1% of annual expenditures.  This includes Pennsylvania, Ohio, Michigan, Kentucky, North Carolina, South Carolina and Arizona. This is too thin a margin to avoid interim spending cuts if tax revenues fall short of the budgeted amount.

In the last fiscal year, every state except Florida, Oklahoma and Hawaii overestimated sales tax receipts.  All but six states overestimated personal income tax receipts. Almost every state had to cut spending after the FY ’10 budget was approved. This year thirty seven states budgeted spending increases.  Many of these states will be forced to make spending cuts after the budget year begins. This is assured by the slowdown in economic growth during the summer and the failure of Congress to provide another round of general use stimulus grants to states. Most governors included another stimulus grant from Washington in their FY ’11 budget. Spending cuts will be required by the end of summer if the full amount expected is not received.

Thirteen states budgeted FY ’11 spending cuts and may have to make additional interim cuts. This includes: Maine, New York, Michigan, Ohio, Iowa, Louisiana, Mississippi, South Carolina, New Mexico, Idaho, Wyoming, Alaska and California.

Seventeen states began the current fiscal year with budget reserves 5% or more of annual expenditures.  This is a big enough cushion to maintain budgeted spending even with shortfalls in tax receipts and federal grants and extra costs for health and social programs. Several of these states have budgeted precautionary budget cuts to preserve an adequate reserve for the following year.

The states with 5% or larger budget reserves include Alaska (243.4%), North Dakota (41.4%), West Virginia (26.8%) and Texas (22.7%) at the top of the list plus Vermont, Delaware, Maryland, Indiana, Iowa, Nebraska, South Dakota, Florida, Louisiana, Mississippi, Tennessee, New Mexico and Nevada.



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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
07/29 - Sour economic growth report threatens construction recovery
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

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