Does a Double-Digit Recession Still Loom? - Industry Beat
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Does a Double-Digit Recession Still Loom?

CED Magazine

Article Date: 12-01-2010
Copyright(C) 2010 Associated Equipment Distributors. All Rights Reserved.

Ed Sullivan, senior vice president and chief economist for the Portland Cement Association expects a very slow recovery.

In a presentation to the Construction Writers Association on Oct. 26, 2010, Portland Cement Association Chief Economist Ed Sullivan cautioned that the U.S. economy is still very much in danger of falling into a double-digit recession or a slower than expected recovery. The reason: Factors such as the waning Federal Stimulus program, low business and consumer confidence, increasing state deficits and a public that has lost its appetite for government spending. According to Sullivan, the federal government has but one weapon to stimulate the economy and get it through what Sullivan calls "the handoff period," and that’s monetary policy.

Just days after Sullivan’s presentation, the Federal Open Market Committee took action to stimulate the economy by buying bonds with newly created money to push down long-term interest rates. The Fed plans to buy $600 billion in longer term Treasury securities by mid-2011.

Sullivan explained that bank possession rates were depressed in 2008-2009 due to moratoriums, so foreclosures will continue to depress home prices and increase the supply of homes on the market through 2010 and 2011. According to Sullivan, states with high foreclosure rates will not participate in housing’s modest recovery. When will housing recover? The economist believes starts won’t be significant until housing prices stabilize and there is less than a five-month supply of homes on the market.

Federal stimulus spending will continue to drive spending on infrastructure in 2011, but it will not be enough to offset declines in state discretionary spending. Seventeen states, including California, Illinois and Florida, have budget gaps greater than 20 percent.

For the long term, Sullivan’s outlook was more positive. The U.S. is projected to add 65 million people by 2030, so we’ll need more schools, healthcare facilities, homes and commercial buildings. And the lack of activity the past two years in housing, has created pent up demand for housing. But of course, stimulus spending must ultimately be paid for, in terms of higher interest rates, higher taxes and potentially higher inflation. And what about consumers? Will the Great Recession have a lasting impression on consumer spending as well as investments in housing? Like the recovery, the answer is likely to take a long time to make itself known.
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