Construction Starts Forecasted to Increase 6% in 2013
Recovery! Finally! Yes! But how long will it last? Perhaps only until next January, if politics intervenes. While construction-market fundamentals are saying yes to recovery, federal politics is saying maybe.
Here is what the economists are saying: McGraw-Hill Construction is forecasting a 6% increase in new construction starts in 2013, following a 5% increase this year. FMI Corp. predicts new construction put-in-place will increase 8% next year, following this year's 5% increase. The Portland Cement Association, looking at the same put-in-place numbers adjusted for inflation, sees only a 1.3% increase next year. The National Association of Home Builders says the rebound in the housing market is on solid ground but that the big numbers are still a year or two away. ARTBA predicts that highway work will remain flat.
However, there has seldom if ever been a group of projections with a bigger asterisk. In this case, the notation marks the fiscal cliff. By year-end, the Bush administration tax cuts will expire. Soon afterward, an across-the-board budget cut of about 8% will hit line by line, with little regard for political or economic fallout. Some pundits have called it a suicide pact between Democrats and Republicans, who could not agree on raising the federal debt limit—previously a simple exercise that never before rose to the melodrama of "Thelma & Louise."
The Congressional Budget Office released a report this month saying the U.S. economy is too weak to survive the plunge. CBO says that if the effects of falling off the fiscal cliff last through next year, it will result in 9.1% unemployment rate and a 0.5% decline in GDP. If the mandatory spending cuts kick in under budgetary sequestration, fiscal 2013 defense accounts, including military construction, would be trimmed by 9.4% and non-defense areas, such as water infrastructure, would be pared 8.2%, according to Office of Management and Budget estimates.
If the fiscal cliff is averted altogether, minus an extension of the payroll-tax holiday and expanded unemployment benefits, then economists estimate that real GDP would expand 2.2% and there would be 2.7 million more jobs next year.
However, the fiscal cliff is not the end of the political problems. Once again, the federal debt limit must be renegotiated and Congress may threaten to shut down the government by refusing to sign a budget. Those deadlines have proved challenging in the past.
Federal construction programs and other discretionary accounts have been operating since Oct. 1 under a continuing resolution (CR), which was enacted on Sept. 28. That stopgap measure, which expires on March 27, funds discretionary programs through that period at an annual rate of $1.047 trillion, up 0.6% from the 2012 level. The CR also contains additional funding, including $6.4 billion for Federal Emergency Management Agency disaster relief.
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Although the CR provides most construction accounts with small increases over 2012 amounts, three Senate committee chairs criticized the measure because its surface-transportation spending is $620 million below the amounts authorized in the Moving Ahead for Progress in the 21st Century Act (MAP-21), which was signed into law in July. The lawmakers and construction industry groups want to see the $620 million restored when Congress approves appropriations for the last six months of fiscal 2013. At ENR press time, it was unclear whether congressional leaders would delay action on 2013 appropriations until the March 27 CR expiration date draws near or whether they would include the spending-bill issues in negotiations with the White House to try to avoid the fiscal cliff.
Did we mention that Europe has its own fiscal crisis? If Europe goes kaput, it also could drag the U.S. economy back into recession. And let's not forget China, where there are signs of yet another economic bubble.
