A brief refresher course on “Economic Budget Deficits 101” is in order. Spending and revenue don't need to match, but they should be close enough to hold deficits to a reasonable percentage of the nation's gross domestic product. Over the past few years, the current deficit has come into focus quickly, but there has been no pronounced increase in spending for the programs facing the budget ax. There are two expensive wars as well as inflation-driven increases in medical costs. Also, federal stimulus spending added to the deficit but saved the auto industry, staunched the hemorrhaging in the financial industry and kept thousands of workers off the unemployment line.

In the last few years, the U.S. has faced a financial and housing crisis, leading to the so-called Great Recession and a continuation of fiscally damaging tax cuts. The federal budget deficit is more of a revenue problem than a spending problem. Further, the best way to increase revenue is with a more robust recovery.

But that recovery does not seem to be an option, given the current economic and political climate. In fact, economists across the board are pulling back on their forecasts for construction markets in 2011.

Recession's Redoubt

“The forecasts for 2011 construction activity have been significantly pulled back,” says Anirban Basu, chief economist with the Associated Builders & Contractors, Washington, D.C. Last November, ABC predicted construction would decline another 1% in 2011; now it expects the market to shrink 3% to 5%. “That is meaningful but not a collapse,” he says.

Basu expects construction to start regaining momentum going into 2012 but says it will have to be led by the private commercial markets. “We know the recovery in construction will not be publicly financed,” he says.

A disappointing single-family housing market is the main reason most forecasters are toning down overall construction predictions for this year. The National Association of Home Builders, Washington, D.C., initially expected single-family housing to bounce back 37% this year to around 600,000 starts, which still would have been well below 2007's level. Instead, the market is “bouncing along the bottom,” says Robert Denk, NAHB's assistant vice president of forecasting. NAHB now sees 2011 generating only about 443,000 starts, 5.9% less than 2010. “Weak job recovery translates into weak consumer confidence. People will not buy a house if they have any concern about their employment,” Denk says.

Traditionally, housing has led the economic recovery, but NAHB does not believe that is going to happen this time around. “Housing will have to wait on a general upturn in the overall economy,” says Denk.

McGraw-Hill Construction, which updates its forecast quarterly, has grown gradually more pessimistic about overall construction starts for 2011. “The relative shifts in the forecast from what was previously estimated are sharply lower numbers for single-family housing and a steeper decline for public works,” says Robert Murray, MHC's chief economist. “However, the broad pattern that we had forecast is holding up, meaning stabilization of the commercial market at a low level and continued declines for schools and other institutional buildings. In addition, predicted increases in manufacturing work and multifamily housing work are holding up,” he says. Overall, total construction starts will remain flat this year.