BuildingTeam Construction Forecast

Notes from Jim Haughey

Reed Construction Data Chief Economist Jim Haughey discusses how current developments in construction markets and the ecomony will bring opportunities and challenges for designers, contractors, and materials and services providers. His reports will cover near-term building demand, cost and financing changes, and will provide early notice on changes in the detailed two-year construction forecasts elsewhere on this site. Feedback and questions from readers are encouraged.

Monday, November 5, 2007

Main Street Vs. Wall Street

Nov 5 2007 11:23AM | Permalink | Email this | Comments (1) |
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166,000 more jobs in October is more evidence that Main Street is paying little attention to Wall Street. After a two month pause, hiring has picked up except in housing construction and related industries. Business managers were jolted last summer by fears that the abrupt recognition of huge losses in non-traditional mortgages could spread higher borrowing costs and capital shortages to the broader economy. But now they have restarted expansion plans after seeing only minimal damage outside of the financial and housing markets.

Managers of non-financial companies have little interest in how investment managers and their lawyers sort out who ends up with the mortgage default losses. The message from the financial markets over the last four months, “someone has to bail us out or there will be serious problems for the rest of the economy” is rapidly losing creditability. This is partly due to reports that some financial managers, including banking giant Wachovia, weathered the mortgage crisis with little damage. Hence, investors taking large losses deserved them as a penalty for their risk preference mistakes.

Restaurants added 37,000 jobs in October, temporary help agencies hired 20,000 people for their clients, nonresidential contractors added 18,000 jobs, wholesalers increased their staff by 10,000 and education and healthcare hiring managers added 71,000 people, confident that their budgets were secure. Each of these employers typically adjusts their staff level quickly to local market business conditions. Obviously, they have stopped worrying about a spending slowdown set off by the collapse of the subprime mortgage market.

The consequence for construction is stronger demand for all types of properties in every market. This will not stop local recessions in the cities hardest hit by the housing collapse. But it will cushion them.

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