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As I See It

A good economic forecast, at long last

I had gotten awfully weary reporting mediocre economic news every year when I put together our annual Book of Giants issue. There were too many times when a couple percent looked much better than being down for the year. But now, finally, we have an economic forecast that’s optimistic.

You can’t discount how much the polar vortex affected this year’s numbers. Construction slowed, flights were canceled, shippers couldn’t ship, and people stayed home and hibernated rather than buying everything from cars to clothing.

Reed Construction Data reported that the value of March non-residential construction starts surged 46.9% to $23.7 billion after sinking 14.2% in February, said Reed U.S. Chief Economist Bernard Markstein.

Markstein noted that since the starts data are not seasonally adjusted, caution should be used in analyzing monthly movements. Starts were up a modest 0.4% from March 2013. The year-to-date starts data, which totaled $58.6 billion, were down 2.9% from the same period in 2013. The March starts data indicate that construction is bouncing back from the harsh winter weather, but still has a way to go.

EMCOR Group President and CEO Anthony J. Guzzi said that, although a 3%-5% increase was the number most commonly cited for 2014, he thought that 3%-4% was more accurate because the year got off to such a slow start.

Construction industry management consultant FMI is forecasting commercial construction to be up 7%, healthcare construction to be up 2% this year and 7% next year, education up 3%, power up 5%, manufacturing up 5% this year and 8% next year, and lodging up 13%. Southland Industries CEO Ted Lynch said his firm is getting work in high-tech manufacturing that’s coming back here and both Southland and EMCOR are getting work in data centers. As Guzzi wryly puts it, there’s a lot of useless data out there that people want to mine anyway.

All of the leading indicators are good, economist Brian Beaulieu, ITR Economics, told contractors at the Mechanical Contractors Association of America convention. Interest rates will remain low through 2015, housing starts will increase 3.4% this year and 7.1% next year, household debt and consumer loan delinquencies are way down, inflation is only 1.2%, and retail sales this year will be up.

But beyond the promising forecast for the next couple of years, it was heartening to hear Beaulieu’s prediction that the United States would remain as the world’s premier economic power for the next 50 years. The reasons revolve around demographics and energy.

Right now, the U.S. is 21.9% of the world’s economy, China is 11.5%, and Japan is number three and shrinking. That’s the demographics part. There will be another billion people in the world by 2050, although not all countries will grow. The U.S. will have an additional 120 million people by 2050 for a total of 420 million. You need population growth. If you want to see a stagnant population and a stagnant economy, look at Japan. People are entrepreneurs, employees, innovators and customers. Each year as the population grows, household formation increases. And you know what happens when household formation increases? People need to buy stuff. Houses have to be built, furniture made, appliances manufactured.

China is going negative. With China’s one-child policy couples aborted females or shipped them off to orphanages. There are now 100 million men in China under the age of 25 without a woman. Japan has been shrinking for years. There are 142 million Russians, and I just read that a quarter of the men die before they reach their mid-50s. Countries that will grow include Brazil, India, Canada, Australia and Mexico.

The second factor is energy. Putting aside the arguments over whether this is a good thing or a bad thing, we have a lot of oil and gas. Fracking has the country awash in natural gas and tar sands are increasing our supply of oil. Beaulieu predicts that by 2025 the U.S. will be the world’s largest oil exporter. Currently, our electricity prices are one-third those of Europe, one of the reasons why manufacturing is making a comeback in this country.

Beaulieu’s outlook isn’t all tea and cookies — he expect a global depression in 2030 — but his prediction that the U.S. will remain the world’s leading economy for the next 50 years is welcome news.

Let’s hope we see a lot more of our favorite woman, Rosy Scenario.

I occassionally have something useful to say on Twitter @bobmader

TAGS: Management
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