Outlook for '99 & '00: economy down, construction solid
News and Information for the Construction Distributor
By DARYL DELANO -- Industrial Distribution, 3/1/1999
With the new year underway, let's take a brief look at what kind of macroeconomic environment building and construction businesses are likely to be operating in during 1999.On the surface, the political environment seems scary. For only the second time in our nation's history, the Senate conducted a trial of the President on articles of impeachment. What a way to start the year! And yet consumers and businesses haven't sunken into a funk of doom and gloom. The economy grew by an annualized rate of more than 4% again last quarter, and housing starts (aided by unseasonably warm early-winter weather) continue to scrape the stratosphere.
Following economic growth of over 3% annually for three consecutive years, the consensus among economic forecasters is that the U.S. economy will grow much more slowly during 1999 and into the first year of the new millennium.
The latest Blue Chip Economic Indicators newsletter forecast a summary of the opinions of about 50 nationally prominent economic analysts, and shows a consensus outlook for 2.4% growth in U.S. Gross Domestic Product this year. This follows gains of 3.4% during 1996, 3.9% in 1997, and an estimated 3.7% last year.
This represents the consensus view, and is very much in line with forecasts done independently by the Congressional Budget Office, the Office of Management and Budget, as well as various international economic bodies like the IMF and the World Bank. Still, there's plenty of room for forecasts of varying degrees of optimism and pessimism.
Among the Blue Chip forecasters, expectations for 1999 GDP growth range from a high of 3.4% to a low of just 1%. Next year's GDP growth forecasts go from 1.1% to 3.2%.
Of course, it's unreasonable to expect economists -- all armed with the same source data, but with radically differing views about how the world works -- to agree on even the "top side" forecast number of GDP. However, it is significant that no annual forecast dips below 1% for either 1999 or 2000 -- a strong suggestion that no one is expecting two consecutive quarters of negative GDP trend. Consequently, although it would be foolish to dismiss outright the possibility of a full-blown recession either this year or next, forecasters continue to see such an event as highly unlikely.
The consensus outlook for housing starts is pretty positive as well. Although the general view is that starts will, in fact, drop below 1998's stellar level of about 1.6 million units, the decline will be moderate. For 1999, the consensus calls for 1.53 million starts, followed by a still strong 1.47 million new housing units during the year 2000.
We're coming off a year that saw record home sales (new and existing, combined) and continued low mortgage interest rates, and lower vacancy rates for office and industrial space. Construction market growth in a number of building sectors will indeed slow this year, but virtually all markets will continue to outperform the nation's manufacturing sector, and most will do as well as or better than the economy as a whole.
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