Equipment Type

2009 Forecast: Could It Be Good?

For the last 22-plus months, the mantra of the incoming president has been "Change" and "Yes We Can!" If we ever needed change, it is now.

January 01, 2009

For the last 22-plus months, the mantra of the incoming president has been "Change" and "Yes We Can!" If we ever needed change, it is now. Our economy has been bombarded with one crisis after another – savings and loan problems; residential housing problems; banks and financial institution problems; auto industry manufacturers floundering; and the stock market acting like it was on a trampoline. Today the mantra has become bailouts, bailouts, bailouts.

If you’re reading or listening to the news, your brain is being overloaded with all the information and misinformation of the benefits or lack thereof in the proposed bailouts or infrastructure stimulus packages. Some of the outgoing administration’s activities certainly appear to be attempts to make it more difficult for the new administration to get started on the right foot and quickly.

What is the answer?

If we don’t bailout the auto industry, the unemployment fallout will slow any possibilities of recovery to a crawl. Any auto industry bailout needs to be given with an eye on the future. Changes need to be made so that the industry can reassure the country that it has learned a lesson this time and that it will learn how to be competitive with global car makers. By the time this gets into print there could be an auto makers’ deal in play. According to recent announcements, a tentative deal for $15 billion has been reached. With a high percentage of the trucks used in construction, this could have an impact on our industry.

According to our recent Buyers Intentions Study 73.8 percent of our survey participants would be buying, renting or leasing light to medium trucks (up to 26,000 GVW), and 55.9 percent would be buying, renting or leasing heavy duty trucks (26,000 GVW and up.)

Bailouts by themselves aren’t the answer, but the investment in our infrastructure that President-elect Obama is proposing could be. Our infrastructure is in need of a serious overhaul. According to the American Road and Transportation Builders Association (ARTBA), in its current condition we cannot compete in a global economy and will soon find ourselves falling behind other countries. Our infrastructure needs are real and they are massive.

The big unanswered question is how much will be put into the package and when?

According to John Horsley, executive director of the American Association of State Highway and Transportation Officials (AASHTO), "President-elect Barrack Obama is pledging to put millions of Americans to work by building and repairing the nation’s highways and bridges, and a new survey of state ‘ready-to-go’ transportation projects is the road map he needs to make it happen."

More than 5,000 "ready-to-go" projects worth $64 billion were identified. These transportation infrastructure projects are considered "ready to go" because they could be under contract within 180 days, supporting an estimated 1.8 million American jobs, if the funding is made available.

"Right now, 41 states are facing budget shortfalls, and many of our state departments of transportation have had no choice but to delay critical projects that will fill potholes, enhance safety, and extend the lifespan of the nation’s aging bridges," Horsley said. "This survey shows that state DOTs are ready to quickly put the economic stimulus dollars and people to work." (To review this article and a listing of the 5,000-plus state projects, click here).

Funding at the state level could present problems to enacting this package. Without matching funds, there are a number of states that would not be able to take advantage of the economic infrastructure infusion.

The Vermont congressional delegation thinks so and will seek to waive the state and local match requirements for all federally funded highway, transit and rail projects through September 2009. The move would give Vermont and other states facing tight budgets a much-needed boost to improve roads and bridges, support public transit agencies and upgrade rail lines at no additional cost to the federal government. (For more on this click here).

Without the help from an infrastructure infusion, the prospects for 2009 are not cheerful. At the Association of Equipment Manufacturers annual meeting in early November 2008, the forecasters were not very optimistic aside from one by Dr. James F. Smith, chief economist, Parsec Financial Management and professor of the practice, Institute for the Economy and the Future, Western Carolina University.

Smith ran through a series of charts, graphs and dialog that substantiated his theory that we were at the end of the current recession and that we would be coming out of it soon. "There are an estimated 33 states with budget problems. These range from the nearly incomprehensible $22.2 billion in California down to a manageable $100 million in Arkansas, Maine, Mississippi, Oklahoma, and Vermont …," he said.

Smith’s concluding remarks were, "The biggest danger at the moment is that we scare ourselves into a very long recession. We won’t repeat the Great Depression in any case, but if we don’t shrug off our fears and get busy shopping, bad things will happen.

"If the Goldman Sachs five-negative-quarter forecast were to materialize, we could easily have six or seven more negative quarters after that. That would guarantee a whole new Congress and president in 2012, but would not guarantee solution to our problems.

"My current forecast assumes consumers will create a record Christmas shopping season and keep it up through 2009. That would mean year-over-year real GDP of 1.6 percent for 2008 and 2.3 percent in 2009.

In 2010 all the Bush tax cuts expire and the insolvency of Medicare will become obvious. That makes that an extreme year unless Congress acts to resolve the problems in a way that is beneficial to economic growth."

James Haughey, chief economist for Reed Construction Data/ACP, points to the following factors relative to our economic future:

  • The 2008-09 recession will be more severe than the recent mild recession in 2001 and the early 1990s, but less severe than the deep recessions in the early 1980s and the mid-1970s.
  • The recession will be front loaded – the panic from the surprise credit problems in September 2008 caused a larger than normal share of the inevitable spending cutback decisions to be made early. Q4 2008 GDP will drop as much as 4 percent with several smaller declines following.
  • The 60-percent drop in energy prices is providing a huge boost to consumer income and the reduction of business operating costs, and will prevent any further erosion in spending confidence.
  • Congress will enact another economic stimulus spending plan very quickly. The 2008 stimulus spending interrupted the recession in Q2 2008 with +2.8 percent GDP growth. The new plan will have a similar impact in mid-2009 and possibly may be enough to end the recession.
  • The recovery from the recession will be unusually slow because credit costs will remain high for a recession period as lenders try to replace the capital lost to unpaid residential mortgages.
  • The housing market will begin to recover before other sectors because its recession began two years earlier than those of the rest of construction.
  • The decline in the nonresidential building market is not due to overbuilding but to credit access and overall economic spending issues, so there is some additional growth left in this building cycle beyond 2010.

The following chart is based on construction project information collected by Reed Construction Data. For a complete forecast by Jim Haughey, visit our website. While there, you can also check any ACP regional magazine for forecasts specific to the geographic regions they cover.  

2009 Forecast Chart

Transportation

Sewer/Water

Misc. Civil

Total
Highway & Heavy

Buildings*

Total

2007

43,400,444,216

26,280,297,276

14,332,159,618

84,012,901,110

244,387,480,982

328,400,382,092

2008

40,786,000,000

26,515,000,000

17,890,000,000

85,191,000,000

231,991,000,000

317,182,000,000

2009

35,894,000,360

19,110,000,000

21,205,000,000

76,209,000,360

229,691,000,000

305,900,000,360

*Does not include single family residences.

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