A Cautious Optimist Reads Today’s Mixed Economic Signals It is difficult to read the mixed signals appearing daily on the status and the direction of the economy. If you’ve been following interest rates and gas prices, then we’re doomed. If you’ve followed the GDP and the manufacturing sector, then we’re experiencing an expansion as companies build additional facilities, hire personnel and increase construction spending. Most companies are accomplishing this by increasing prices to cover higher material costs and implementing low-cost sourcing. When gas prices were over $3.00 per gallon this past summer many analysts predicted they would make a sharp decline this fall based on historical trends, market demand and production levels. This appears to be happening – even diesel fuel continue to drop in price –in spite of the war in Israel and Lebanon, the closing of half the BP oil supply line in Alaska and the most recent foiled airline attack by suspected terrorists. In addition, even though consumer spending had diminished, it has made a surprising upsurge in recent months. Asphalt prices have risen and aggregate production has slowed the last 60 days, yet public works projects are moving forward. The states are becoming very creative in finding funds to match Federal dollars – with the leasing of toll roads being one of the more recent and more controversial methods. The housing market is finally cooling and housing starts are down, but commercial building has picked up the slack and the equipment rental market is experiencing a tremendous boom. I consider myself an optimist about the economy – a realist, but an optimist nonetheless. I know we will eventually have to deal with another recession in the construction industry, but I have been saying for awhile that I did not see it starting for another 18 months to 2 years; but many disagreed with me and predicted a recession later this year or early next year. But at the recent AED Executive Forum in Chicago, September 6-8, several economists and forecasters showed a wealth of charts, graphs, trends and economic predictors that the construction industry is in very good shape through 2007 and into 2008. We will experience a modest “slowdown” to more rational levels, but we will continue to be very busy. And the majority of the executives – voting on their individual electronic reader response units – agreed with the soothsayers. We will continue to watch the economic and related signs closely and offer our perspective as we move further into 2007. |
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