Industrial Distribution

The already passed Senate bill includes billions for tax extended tax loss carry forwards for corporations requested by auto and homebuilding companies, a $7,000 taxpayer funded bonus for buying a foreclosed home and billions for alternative energy tax credits. Also included are $11 billion for direct federal mortgage lending and the usual handouts to consultants and counselors.

The house bill is still being negotiated but at this point includes a tax credit for all home purchases requested by the National association of Realtors, favors for investors in low income housing and a plan for the long dormant Federal Housing Administration to insure $300-400 billion dollars of mortgages that private investors do not want. Isn’t this how we got into this mess – by making loan repayment guarantees that could not be kept?

There are probably more specia...Read More

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The 63,000 job decline in February on top of a 22,000 drop in January is too large to be offset by the improving trade balance so expect a small first quarter decrease in GDP and almost certainty a further decline in the spring.

The consequence for construction is a further reduction in space and facility demand and more available space and facility capacity. Most of this weaker outlook was incorporated in the construction spending forecast recently posted on this site. The immediate negative impact will hit commercial building construction much harder than other sectors. The value of February commercial starts fell 30% from January, well more than the usual seasonal decline. Full details for February starts will be posted on this site early next week. The big job losses will also extend the housing recession but that impact will not appear in the market data until late s...Read More

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The probability of a recession this year is now more than 50%. The last straw was the latest weak jobs and construction spending reports. Both were the weakest since 2003 and both were accompanied by downward revisions for recent months.

The economy all but stalled in the final quarter of 2007. Economic activity almost certainty declined in December and early data suggest another drop in January. A recession would be relatively brief and mild, similar to the last eight month recession in 2001. Monetary policy has already turned very expansionary with the 1.25% cut in credit costs by the Federal Reserve Board. Fiscal policy is also becoming aggressive with tax rebate check likely in the mail as early as May.

Recessions often begin with drops in business investment and consumer durables spending and a surge in inventory accumulation. None of these are happen...Read More

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The unexpectedly small 18,000 job gain in December threatens to destabilize the fragile financial market yet again and push buyer confidence even lower. By itself, one weak month of job growth is usually not so significant. But investors and business managers had been trying to conduct “business as normal”, hoping for no more bad news. Now it has happened.

The consequences for construction are another round of turmoil in mortgage markets which disrupt and delay construction starts and another round of cuts in space and facility demand as homebuyers, facility managers and developers cautiously scale back to avoid being caught overextended.

The Federal Reserve Board and other central banks will need to inject more cash into the banking system; the flip side of this coin is another drop in interest rates for risk free government bonds. The cash is...Read More

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166,000 more jobs in October is more evidence that Main Street is paying little attention to Wall Street. After a two month pause, hiring has picked up except in housing construction and related industries. Business managers were jolted last summer by fears that the abrupt recognition of huge losses in non-traditional mortgages could spread higher borrowing costs and capital shortages to the broader economy. But now they have restarted expansion plans after seeing only minimal damage outside of the financial and housing markets.

Managers of non-financial companies have little interest in how investment managers and their lawyers sort out who ends up with the mortgage default losses. The message from the financial markets over the last four months, “someone has to bail us out or there will be serious problems for the rest of the economy” is rapidly losing cred...Read More

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The surprise strike by the UAW against General Motors on September 24th is a "meow" compared the lion’s roar of national strikes against auto companies in the distant past. The last national auto strike was against Ford in 1976. 77,000 workers are on strike, a small fraction of UAW employment at GM in the postwar period well into the 1980s. The share of GM vehicles (and parts) made outside the US is many times the share when the UAW last struck GM.

The current strike will take a bite of yet undetermined size out of economic activity in September, probably October and possibly beyond October. But this is a minor event for the overall economy compared the collapse of housing starts early in 2006 which is still dominating economic trends. Reed Construction Data has not trimmed the outlook for the economy or construction but will have to do so if the strike e...Read More

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