As we leave 2011 behind and inch closer to 2012, let's take a look at economic outlooks from a variety of sources.
Housing shortage on the way
With annual growth in consumer spending averaging 0.2% the past three and a half years, Thomas Freeman, senior vice president at UBS Financial Services, says this economy is in “the most anemic consumer recovery in history.”
“With jobs growth comes consumer confidence,” Freeman says. But why has there been no jobs growth since the recession officially ended in 2009? Uncertainty is impeding hiring. Freeman blames the new national health care law, the Dodd-Frank financial reform bill, regulations by the U.S. EPA, rulings by the U.S. National Labor Relations Board, and unknown future tax rates.
To break the “cycle of uncertainty,” Freeman suggests giving consumers a permanent increase in income by lowering taxes and increasing employment by giving businesses incentives to expand. “The biggest problem is the consumer. We have to get the consumer spending again.”
Forty percent of the economy relies on housing and there is excess inventory of 2 million homes in the U.S. today. But because 2 million new households are added annually, Freeman says that in a couple of years we will have a housing shortage. “That's great news for the housing industry,”
“While there is gloom, there is no doom,” he says. The United States still produces more than the next three largest economies (Japan, China, and Germany) combined. U.S. gross domestic product is 10 times larger than China's and 50 times that of India.
The United States also has one of the youngest populations of the developing countries. “The growing population offers the hope of expanding markets, new workers, and entrepreneurial innovations,” says Freeman.
PCA scales back forecast
In his recently issued Fall 2011 Forecast, Ed Sullivan, vice president and chief economist with the Portland Cement Association (PCA), says the association has reduced its projections for near-term economic growth and job creation.
“Despite economic growth, the residential sector will continue to be plagued by a large volume of foreclosures, tight lending standards, and weak new home prices,” explains Sullivan, who forecasts single-family housing starts of 443,000 in 2012, increasing to 1.2 million in 2016. “A significant residential recovery is not expected until 2014.”
Home builders are waiting for two developments: Unsold home inventory falling to five months or less, and stable or rising home prices. “Lacking either condition, a substantive recovery in home building will not materialize.”
“Without a significant improvement in expected return on investment, commercial construction activity will remain depressed,” Sullivan said. “Potential investors in commercial buildings are likely to wait until occupancy and leasing rates improve and asset prices appreciate. Nonresidential recovery will remain prolonged, with substantive cement volume gains materializing in 2013.”
Highway spending in 2012 could fall by double digits. So far, 83% of 2009 stimulus money has been spent. An extension of the highway bill at constant nominal levels suggests fewer real dollar spending after inflation. “Slower job creation implies a prolonged period of state governments' duress,” he said.
We will feel a lot better
Kermit Baker, chief economist at the American Institute of Architects; and Mark Zandi, chief economist at Moody's Analytics, spoke at Hanley Wood's Foundations conference in Chicago earlier this fall.
“Economic growth has stalled, with growing concern that the debt problems in Europe will create problems in the United States,” said Baker. In the United States, employment remains weak and housing has still not recovered. Having undertaken a $900 billion stimulus program and with interest rates near zero, “further fiscal and monetary policy seems limited.”
“Commercial property values fell further than house prices, but unlike housing, recovery in values seems under way,” Baker said.
“It's going to take the broader economy to generate growth before we see it in the construction industry,” said Baker, who forecasts a “modest” recovery in nonresidential construction in 2012.
“The economy is struggling to avoid recession,” said Zandi, who pegged the chances of the United States slipping into another recession at 40%. While U.S. employers were adding about 200,000 jobs per month early in 2011, hiring has slowed as the year progressed. Higher gasoline prices and the earthquake and tsunami in Japan have created uncertainty.
But Zandi sees a promising future quicker than most commentators. Bussiness' balance sheets and profits are strong, household debt has been reduced by 10% the past three years, and the banking industry is capitalized and profitable.
“The key source of recovery for our economy will be the construction industry,” Zandi said. Housing is back to being fairly valued or even undervalued. “I'm quite confident that at this time next year and when we get to 2013, we will feel a lot better.”
Zandi forecasts housing starts to total 725,000 in 2012, 1.25 million in 2013, and 1.75 million in 2014.
— Tom Bagsarian, editor of THE CONCRETE PRODUCER