Will Construction Regain its Leading Economic Sector Prominence

As frequently noted in previous columns regarding America’s potential future comeback, the school is still out as to whether this once primary pillar of economic strength can regain the leadership it enjoyed prior to the financial crash of late September 2008.

The answer to this still unanswered question could have inestimable impact on the scope and speed with which this construction comeback will facilitate a much delayed return to some semblance of economic normalcy. Not the least of such a rebound could be the rehiring of tens of thousands of construction workers, whose unemployment level has exceeded over 50%.

An obvious conclusion at this time is certain. The status of home ownership as the critical asset to which America’s middle class families should aspire is over. Despite all-time low mortgage rates and untold thousands of homes available through purchase of short sales and foreclosures available from banks, these will not rekindle the belief in home ownership that had existed since the early days of the post World War II period.

Much of the current new construction, which has upped such building improvement by 10% year-over-year through the end of July, is projected to be occupied by renters. This is magnified by the fear of home buyers that the “flipping” days of ever-higher priced properties is a thing of the past; also, the need to “pack up quickly” as job openings occur in different parts of the nation, makes relocation mobility an important factor.

In analyzing the commercial and industrial segments in the context of a potential return to an annual trillion dollars in revenues, the following sub-sectors stand out:

1) Power generating utilities, playing a desperate game of long-delayed catch-up, had skyrocketed by 43% year-over-year by the end of July. Following that surge is the broad area of manufacturing, benefiting by a slow, but steady return to “made in America.” This has generated a year-over-year increase of 31%. Private school and hotel/motel construction comes in right behind with 28% and 25% respectively. Although moderately impressive, these numbers reflect a bounce from numbers which had fallen at the greatest rate in more than 50 years in late 2008 before regaining their footing in the last 18 months.

Most supportive of the current building bounce has been the Federal Reserve Board’s low mortgage and interest rate guarantees through the end of 2015. Also abetting the possibility of further investments to further growth has been the influx of Southeast Asian, Canadian, and sovereign wealth fund commitment to America’s fixed assets. This is a diversion from the multi-year commitment to America’s Treasury debt paper, which had become the world’s haven of secure payback of principal, despite the low interest rate yields generated.

In the forthcoming post election economy, expect the U.S. construction sector to be a signpost of the U.S.’s economic future in the next few years.
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