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The nation’s residential, commercial and industrial construction markets can expect a major uplift, both in the immediate and longer-term future, according to the Portland Cement Association. The PCA claims that on the basis of the 2012 cement consumption gain being the strongest in seven years, cement consumption growth will continue this year with a 6.2% increase. The PCA announcement goes even further in predicting 2013’s second half will exceed the level of expansion experienced in the past year. The PCA’s unrestrained optimism believes the ongoing momentum will result in an upcoming 9.2% acceleration for 2014.
The only fly in the ointment of this solid forecast is that public construction is now caught in the web of a slump. This is based on the downturn caused by sequestration in an agreement reached by the House and Senate Conference to get over the March 31 government spending hurdle, with a six-month continuing spending resolution.
Aiding and abetting such uplifting forecasts are the record amounts of money coming into the United States from financial institutions worldwide. With Europe and even China, plus much of the rest of the world, coming off a weaker-than-expected first half year, a veritable tsunami of additional investments are shifting into the United States as the preferred target for global financial wealth funds and institutions from everywhere else.
Although such unbridled optimism is already generating fear of a new bubble, the average home price is still 30% below the 2008 price crash. Even though saleable homes and commercial buildings in most of the country are experiencing an inventory reduction, the current upward surge of the 10-year Treasury note, on which most mortgages are based, may start to cool off most of the mortgage-based principal loans that have facilitated much of the current activity.
Also, with most of America’s medium and large banks plus other financial institutions sitting on record amounts of cash, they may be increasingly selective in offering loans that facilitate the mortgages underpinning the acceleration of mortgage-based loans.
But, generally speaking, the overall construction picture at 2013 mid-year is certainly brighter than the anticipated earlier forecasts for the building sector.
Government construction cutbacks
Based on the optimistic statistics and projections emanating from the Congressional Budget Office, one would think that a projected $650 billion 2013 fiscal year deficit, and a Treasury debt short of $17 trillion, indicates that “happy days are here again.”
After four consecutive years of trillion-dollar annual debt and deficit increases, I’m sure that the White House public relations magnates will use the vast resources at their disposal to convince the millions of their adherents, as well as critics, that strides toward economic revitalization are well on the way. They are even pointing to a substantial April multibillion-dollar surplus to indicate that a turnaround is underway. But, on closer observation, the temporary tactics used to make the nation’s fiscal picture seem shining ever brighter will prove that a short-term combination of factors is responsible for the apparent summer calm:
1.The huge amount of dividends, capital gains and liquidation of assets that occurred in 2012’s fourth quarter, to escape January tax increases for the upper 2% of taxpayers, as well as the 3.8% surtaxes loaded on the high-income crowd as of the first of 2013, generated a taxpayer bubble before the clock struck midnight on Dec. 31, 2012. This swelled the April national tax income to a one-time high level.
2.The March 31 sequestration hurdle was overcome by a patchwork of informal cutbacks, deferred to the upcoming 2014 debt ceiling though “continuing resolutions.” This has allowed the federal government to make the necessary financial expenditures to keep the machinery of bloated government agencies functioning. When the air traffic control sector cutbacks impeded orderly flight scheduling, the ATC group’s nonpaid holidays were cancelled to still the resultant public’s outcry.
3.A major chunk of government construction expenditures were either postponed or cancelled. This part of the cost cutback deal, to demonstrate the administration’s fiscal responsibility, has been done with such alacrity as to subdue the nation’s industrial construction activity, as well as to put a crimp into the manufacturing recovery, which seemed to have gotten off the ground in 2012.
4.Although not official, the Obama administration has restrained both the extreme aspects of the EPA and the Dodd-Frank excesses that have instigated employment cutbacks by a large segment of independent businesses. These firms have turned increasingly to technology to replace personnel, in light of the forced hiring to comply with the Dodd-Frank fiscal dictates.
Furthermore, the thousands of additional IRS agents who will be turned loose on independent businesses, which are being forced to take on more bookkeepers in self-defense, will cause their employment tightening to get even tougher.
The summer lull that businesses are using to strengthen cost effectiveness will result in further unemployment stagnation. This will instigate a new reality setting in on Jan. 1, 2014, as the real world faces Obamacare in its impact on America’s potential economic forward motion.
Is U.S. infrastructure crumbling?
With the sensationalist-minded U.S. media overcoming the dreary summer months by dwelling on administration scandals and turbulent weather outbreaks, little is being noted about the potential tidal wave of infrastructural breakdown. With the federal, state and municipal governments zeroed in on stemming the budget deficit tide, the state of the nation’s highways, bridges, dams, railroad tracks — not to mention power generating and oil/gas distribution — is hardly mentioned.
Like a possible major earthquake along California San Andreas fault line, it seems such potential disasters will not make front-page news unless, and until, they happen. In attempting to put this in focus, the warning signs are starting to show up, but only sparingly as yet.
Since the opportunity to utilize the trillion-dollar stimulus voted for the Obama administration in February 2009 was directed toward bailing out major automotive and other industrial firms, plus pushing a renewable alternative energy (wind, solar, ethanol and geothermal) program, as well as laying the groundwork for Obamacare, the FDR New Deal-type infrastructure steamroller never happened. Since this lost opportunity has caused an infrastructural void, not confronted since the 1950s Eisenhower national highway development, the following segments are not only in disrepair, but face unanticipated collapse at any time. This summary focuses on shortcomings and dangerous pitfalls:
Bridges. A major bridge collapse in Minnesota escaped disastrous proportions, only because the loss of life and limb was limited. It turns out that many hundreds, if not thousands, of bridges trace their construction back 75, 100 or more years.
Dams.Such major dams as Nevada’s Hoover Dam, which were built under TVA and other Roosevelt-era agency jurisdiction, have been sadly neglected as pre-emptive expenditures to update them have been relegated to the back burner of hard-pressed agencies responsible for their maintenance and upgrade.
Highways and railroad tracks.These have suffered from inattention and minimal patchwork repairs, replaced only when a major breakdown occurred. Maintenance, rather than expansion and upgrade, has been the watchword here.
Pipelines.The nightmarish crisscross of inadequate pipeline construction for both oil and gas, as well as the critical expansion of power generation to adequately service a population that has nearly doubled since 1950, borders on criminal neglect.
It is hoped that monumental disasters, breakdowns and inadequate energy service do not occur in the foreseeable future. But hope is a flimsy base on which to build a solid future for the world’s third-most populous nation with 320 million inhabitants and continued growth.
Anti-business regulatory intrusions
Just when we thought the Dodd-Frank congressional bloc’s planned implementation had reached its limits, we have discovered the height of absurdity, which the bill’s Securities and Exchange Commission compliance demonstrates.
A warning shot has already been issued by a rule adopted last August, wherein the SEC requires publicly reporting companies to state if minerals in their products are sourced from the Democratic Republic of the Congo or adjoining nations. If so, the utilizing companies must make a reasonable effort to determine if such minerals are funding armed groups in that country. This legislation applies to tin, tantalum, gold and tungsten, but it is understood to affect all base metals.
Furthermore, companies that use these metals are required to submit reports by May 31, 2014, to the SEC, demonstrating that they have not used such “conflict” minerals in their products.
When attempting to discern some rational thinking behind this particular bit of irrational legislation, one can only cite the authors of such legislation. Their seeming objective is the hope that the federal government will wind up in total control of all levels of business activity, equating such examples of this strategy as Venezuela, Cuba and the former Soviet Union, which led to its eventual dissolution in 1990.
Although independently owned establishments seem to be exempt from this harassment, such manufacturers, importers, and especially distributors, end-users and even companies that don’t handle products containing these materials would be put in a position of certifying that products for which they are responsible in “moving through the supply channels” are not in conflict with these regulations. Even installers will be dragged into this mess, as the May 31, 2014, compliance date beckons.
These absurd dictums will lead to a further unemployment and business slowdown. A fiction writer concocting a fantasy as to how China would finally crush America’s entrepreneurial supremacy would have his script rejected for being incomprehensible. These self-destructive initiatives hatched by congressional opponents of America’s economic growth are gaining increasing traction.
Chicago-based Stainless Sales Corp. reports that it is already receiving requests from its customers documenting that its products do not contain the SEC’s self-described conflict materials. This increasing intrusion by government agencies and the White House to make America increasingly uncompetitive under the guise of foreign policy manipulation, climate control, clean air and water and preservation from intrusion by fossil fuels through renewables could eventually result in a self-induced national economic downfall. Only the hope of a reawakening by national leadership stands in the way.