Continued growth is expected in construction spending which will be released next week.
Americans are an impatient lot – and impatience can be a good thing. The economy is not strong enough, so it is argued something must be done. Many economists believe a nice fiscal fix (drug world talk) is in order to set the economy on the proper upward trajectory.
But deep down in the bowels of the economy, construction (which historically is an major economic driver) is sitting up on its death bed – weak and a literal shadow of its former self. Its contribution to GDP is down $400 billion from its peak level in 2006.
click to enlarge images
The red line on the above graph is construction spending expressed in current dollars, while the blue line is year-over-year growth in construction spending. Note that for the first time since the recession began, construction spending is growing.
In this article’s title I suggested you shouldn’t look now at construction spending growth – that is because growth from such a low level must become much stronger to really help the economy improve. But, at least we are seeing year-over-year growth in the sector for only the second time since 2006.
So we are reading off of the same page, it is PRIVATE sector (blue line in graph below), not GOVERNMENT sector which is awakening.
The government sector (red line in above graph) remains in a down trend which began just before the Great Recession began. Governments are impatient – and proper construction spending takes planning and time. This is inconsistent with elections which happen on 2 year cycles. And likely the proper seeds were not planted with the stimulus.
Construction planning cycles are longer than 2 years, and major infrastructure cycles are 10 years or more. Design, permits, procurement, construction and startup take time. A $1 billion project likely could not burn much more than $100 million per year, and in the first several years – spending would almost be unnoticeable.
Yet, with all eyes on GDP – construction spending is the easiest fix to a poor economy. Employment in the construction sector is now no longer falling (I would be embarrassed to say it is growing).
Getting this portion of the economy growing at former levels would add 2 million direct jobs – and likely 4 million others (opinion as multipliers are unprovable). But with the residential housing crisis still underway, this growth must be driven by business and government.
Econintersect believes real recovery runs through jobs – not through a focus on GDP or debt reduction. Although we have argued in the past that infrastructure spending is a very inefficient jobs creator, on the other hand construction spending at the current low rate means our infrastructure is not being maintained, and the existing infrastructure is not being expanded for the 1% per year population growth.
Economic News This Week:
The Econintersect economic forecast for October 2011 predicts very weak growth. The forecast for November will be released Monday. A more positive note is that there has been a mediocre improvement in the data over the last two months.
ECRI has called a recession. Their data looks ahead 6 months and the bottom line for them is that a recession is a certainty. The size and depth is unknown. Although Econintersect’s data is not yet recessionary (one month look-ahead) – we take this recession call seriously. This week the actual level of ECRI’s WLI index was less bad but still indicating the economy six months from today will be worse.
Initial unemployment claims fell 2,000 (from 404,000 which was revised up from a preliminary 403,000 last week) to 402,000. Historically, claims exceeding 400,000 per week usually occur when employment gains are less than the workforce growth, resulting in an increasing unemployment rate (background here and here). The real gauge – the 4 week moving average – rose to 405,500 due to higher revised data from previous weeks. Because of the noise (week-to-week movements from abnormal events), the 4-week average remains the reliable gauge.
Overall the data this week showed an improving economy. There were no recessionary flags – but durable goods data was very weak and worrying. Housing data even though terrible, is no longer showing much of a downward force. Could it be near the trough of this crisis?
Weekly Economic Release Scorecard:
|Advance 3Q2011 GDP: Will GDP continue to improve in the next quarter?|
|October Michigan Consumer Sentiment: Grim but unexpectedly rose to 60.9|
|September Personal Consumption Expenditures: Up a strong 0.5% MoM|
|September Pending Home Sales: Up 7.9% from a year ago|
|Advance 3Q2011 GDP: 2.5% isn’t great but is showing more consumer buying|
|Eurozone: Why Spain, Portugal, Ireland and Greece should leave the Euro|
|September New Home Sales: No year-over-year-growth|
|September Durable Goods: No inflation adjusted growth year-over-year|
|October Conference Board Consumer Confidence: Now at recession levels|
|August Case-Shiller Home Prices: Up slightly month-over-month|
|September CFNAI: Is this super-coincident index accurate in real time?|
|GDP Targeting: Krugman suggests a expansionary fiscal policy|
|USA Markets: Have broken through strong resistance levels|
|Investing Vocabulary: 11 terms you need to understand|
|Commodities: Currently oversold but the dollar is the key|
|Stock Market: Is it currently overbought?|
|Greece: Four steps you should take before Greece defaults.|
|Europe: The USA Markets are keying off of European events|
|Gold: Is it acting like a safe haven?|
|Ronald Reagan: What would he be thinking if he were alive today?|
|Occupy Wall Street (OWS): The kids understand workers are not wanted.|
|USA Social Security: Is it a deficit reduction problem?|
|China-USA Trade: Is the USA violating WTO trade rules?|
|USA Regulation: Is it regulation which is killing jobs?|
|Rebalancing the Global Economy: Does China hold the keys?|
|Eurozone: Systemic Problems require systemic solutions|
Bankruptcies This Week: Privately-held Southern Montana Electric Generation & Transmission Cooperative
Failed Banks This Week:
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.