Construction Industry Forecasts

For eighteen months during 2007-08 soaring exports trimmed the US trade deficit, boosting GDP and masking the progressively weaker performance of the US domestic economy. This contributed to the shock at the 6.3% collapse in GDP growth at the end of last year when trade results briefly worsened. Now it is happening again in the first quarter of 2009. But this time the trade gains come from plunging imports. On April 29th, 1st quarter GDP growth will be announced to be about -4.5%. Excluding trade the decline in the domestic economy will be about -6.0%.

Do not misinterpret the announcement that the GDP decline slowed markedly during the winter. If your business is largely confined to the domestic US economy, the plunge in your market continued unabated during the winter. The recession will ease during the spring but did not during the winter. A turnaround in reported trade balance trends is likely during the spring. The slowing recession in the US will boost import and the much deeper recession abroad will trim exports.

The GDP growth reported in the second quarter is likely to be in the -3% to -4% range with a worsening trade balance contributing about 1%. But for business operating largely in the US domestic market, the relevant change in GDP is not from -4.5% to -3.5% but from -6.0% to -2.5%, a much more significant improvement. If you miss the true scale of the economic improvement in the spring you will be late getting ready for further improvement in the summer and a return to growth in the fall.

Credit conditions also benefit from the improvement in the US trade balance. It reduces our need for foreign borrowing which would pressure interest rates higher both directly and by weakening the exchange value of the $US.