Construction Remains the Weak Link in the Economy
Posted by Michael A. Kamperman on January 6, 2010
The economic crisis is best thought of as a bursting construction bubble in both residential and commercial properties. For perspective on when we get out of this consider that after the bursting of the NASDAQ bubble that index still trades ten years later for less than half of its all-time highs. It will take a generation or longer for residential and commercial properties to approach the high prices they reached after the height of the no credit, no job, no money down, no worries mate you got a McMansion mania. In November construction spending fell again and is now down 13% from November of 2008. Homes sales slowed markedly in November once the first time home buyers tax credit expired for the first time. Millions of more foreclosures are on the way. On the commercial side there is a glut of empty retail space, office space, hotel space, and warehouse space. And unlike the tech companies that took it on the chin ten years ago it is highly unlikely new innovations will render any of these properties obsolete any time soon and in need of replacement to revive the construction industry. Spain, Ireland, and a host of others headlined by Dubai are also massively overbuilt. Many of the barely more than interest only mortgages backing these overpriced properties have not been written down by the Zombie banks. After all why not extend and pretend instead of fix and lend as long as the bonuses keep coming.
Unlike the NASDAQ bubble there are a lot more jobs on the line this time. Many of these jobs will be gone for a generation or more because the buildings are not going anywhere. When we think about bringing the 10% unemployment rate down we need to realize the jobs lost in construction are not returning. The construction industry includes a lot more than carpenters and electricians. It includes mortgage bankers and lawyers, realtors, architects, interior designers, and manufacturers of building materials. It also includes peripheral jobs making pick-up trucks and running a lunch wagon. Most of these jobs are very good paying jobs and even if we find another job for the laid off worker the new job will probably pay half of what they were making in the construction industry. This of course impacts consumer spending and will cost jobs in a host of other industries including retail and food service.
The Obama Administration is failing to provide the big bang stimulus programs needed to shock and awe the economy back to stability. This is unforgivable and Geithner and Summers need to go. Construction spending is down 13% from a year ago and falling and these knuckleheads are trying to spin us that the economy is growing again. But what is much more important is the economic GDP worshipping technocrats President Obama has surrounded himself with do not grasp the depths of our economic despair and are devoid of the vision thing. We need somebody in Washington who can see the dilemma our nation has fallen into. Exactly how are we going to redeploy the army of well paid construction workers? Do where tear down older obsolete buildings to keep the construction industry thriving? Do we innovate a new industry to absorb the millions of unemployed construction workers and at what pay-scale? Or do we alter our social contract and make retirement at earlier ages more palatable to open up jobs for younger workers? Personally I believe we should employ all three strategies simultaneously. Is the Obama Administration even discussing the need to discuss a strategy?
