Economy for '04: Blasé

Members from all over the construction industry gathered in the nation's capital recently for the latest market intelligence as to how 2004 may fare. The news in a nutshell: expect another flat year.

"There's still a lot of uncertainty out there," said Gene Sperling, former national economic advisor for the Clinton Administration and former director of the National Economic Council. "We're still in a period of job loss that has lasted 22 months—a new record. And while Wall Street is predicting an average growth of 5%, and other economists are generally bullish, I find myself in the 'blasémist' camp."

Sperling was one of a number of economists and construction industry experts speaking at Reed Construction Data's 8th annual North American Construction Forecast at the National Press Club in Washington, D.C., Oct. 15.

Why was Sperling, who believes a 3% growth to be more realistic, so cautious? First, he said, there literally will be a race next year between business and consumers as to who will throw in the towel first. If it's business, that's good news, as he said it will mean much needed investment will finally be realized. On the other hand, if it's the consumer, that's bad news, as Sperling said it will mean consumers, who've basically been propping up the economy the past couple of years, will join business leaders in putting their hands in their pockets.

Unfortunately, Sperling fears the latter. In his opinion, the pent-up demand for new housing and automobiles is ending. Furthermore, he said, the states are in real economic trouble. Higher state taxes and higher university tuitions being implemented on their end is cancelling out almost all the economic stimulus being supplied at the federal level.

Making the situation even worse at the state, county and municipal level, he said, is the fact that a lot of hard decisions have been put off this year due to budget shifting. But next year it may result in even more layoffs.

On the subject of jobs, a lack of new job creation is further adding to negative perceptions among consumers, which may lead to a pullback in spending. "A recent poll said 60% of Americans feel their personal economic situation is still good," said Sperling. "That's the silver lining. The balancing point, however, is if that attitude shifts from 'safe' to 'threatened.'"

Backing the possibility of such a shift, he said, is the fact that temporary jobs—which when they rise, typically indicate a trend toward permanent hiring—have risen the past five months, but hours in those jobs have not picked up, indicating a status quo. Adding more fuel to the job fear fire is the general trend of many companies outsourcing jobs to India and China.

Finally, a number of federal issues remain in the way of quick economic recovery: booming heath-care costs, which Sperling feels may require some kind of universal coverage from the government; the unknown cost of Iraq's reconstruction; and finally, the deficit, which he feels is the nation's greatest challenge.

"Right now we're on the brink of Baby Boomers hitting retirement and who knows what that will mean for social security," said Sperling. "We have to come up with proposals as to how we're going to pay for it because right now there's no fiscal discipline, and in essence, we're saying let our children or grandchildren pay for it instead of dealing with a problem we could solve now."