The Good, the Bad and the Ugly of the Economy
October 21, 2011

By Sahely Mukerji, smukerji@glass.com

Tom Ichniowski (extreme left), Washington, D.C., bureau chief of ENR magazine, moderated the Outlook Meets the Media panel that included (from right) Stella Dawson, U.S. specialist economics editor of Thompson Reuters; Nick Wakeman, editor-in-chief of Washington Technology; Jim McTague, Washington editor of Barron's, Dow Jones Business and Financial Weekly; and Randy Walerius, transportation analyst team leader of Bloomberg government.

For the economy to grow and avoid a double-dip recession, private financing is absolutely essential, said Robert Murray, vice president of economic affairs for McGraw-Hill Construction (MHC), at the 73rd annual Outlook Executive Conference in Washington, D.C., on October 19. The other key factor is job growth, he said. "We lost close to 9 million jobs since the recession began, and have only picked up 2 million since," he said. "This year started off well with the addition of 179,000 jobs per month from January to April, but from May through September, it fell back to a pace of just 72,000 per month."

For an economic recovery to be self-sustaining, employment gains at about 200,000 jobs per month are necessary, said Stella Dawson, U.S. specialist economics editor, Thompson Reuters. Dawson was part of the Outlook Meets the Media panel at the conference.

The construction employment series issued by the U.S. Bureau of Labor Statistics was down 0.2 percent in the first nine months of 2011, compared to the last year. This follows the 8 percent reduction for construction employment reported for the full year 2010.

President Obama's American Jobs Act, proposed on September 8, did not pass Senate vote this month and this makes matters worse, Murray said. "It is likely to be re-introduced piece by piece," he said. It includes a payroll tax cut extension for another year, and $105 billion for infrastructure work, including $25 billion to upgrade public school buildings, $5 billion to repair abandoned housing and commercial buildings, $10 billion to launch a national infrastructure bank, and $50 billion for transportation. "Is this going to pass? I'd say no way," he said.

Furthermore, the lift that construction got from federal stimulus act has fallen considerably, Murray said. "Public works and electric utility projects designated as 'stimulus related' climbed from $0.2 billion in the first quarter of 2009 to $8.5 billion by the third quarter of 2009, and then maintained an elevated pace in the first two quarters of 2010," Murray said. "These projects fell back to $0.9 billion in the third quarter of 2011, down 89 percent from the 2009 quarterly peak."
The lift from the stimulus act for buidings, as opposed to infrastructure, was more modest with stimulus-related projects peaking at $2.1 billion in second quarter 2010, and retreating to $1.3 billion in this year's third quarter.

On the positive side, corporate profits have been relatively healthy and firms are sitting on more cash, Murray said. "Back in 2008, corporate cash for U.S. nonfinancial firms had fallen to $1.4 trillion, but since then the level has gone up to $2 trillion." The banking system is also healthier now than a few years ago. "In addition, low interest rates should remain low through next year," he said.

The Federal Reserve's July 2011 survey of bank lending officers showed continued easing of lending standards. For commercial and industrial loans, 22 percent of respondents indicated that they had eased lending standards to large and medium size firms during the second quarter of 2011, in relation to the previous three months. This marked the seventh straight quarter that lending standards on net eased, after tightening over the previous two-and-a-half years.

"On October 30, 2009, federal bank regulators issued guidelines on commercial real estate loans, encouraging banks to rework loans, Murray said. "As a result, the volume of commercial and industrial loans went up 7 percent since October 2010. A few major projects also resumed construction, for example, the Revel resort."

Need more info and analysis about the issues?
CLICK HERE to subscribe to USGlass magazine.