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| Andy Bauer of the Federal Reserve Bank of Richmond addresses attendees at the 2011 C&D Recycling Forum. |
Attendees of the C&D Recycling Forum, held in Baltimore in late September, received a snapshot of current economic conditions from Andy Bauer of the Federal Reserve Bank of Richmond, but Bauer admitted that the picture was somewhat blurry.
For attendees who came to hear Bauer provide some clarity to the current economic direction, Bauer was upfront in saying “the current outlook is still somewhat uncertain.”
Bauer, an economist who told his audience the views he presented were his own and not the Federal Reserve Bank of Richmond’s, said the economic rebound following the recession of 2008 and 2009 remains disappointingly weak compared to earlier rebounds.
“Normally at the end of a recession you see a big rebound in consumer spending,” remarked Bauer. “We haven’t had that, and part of the reason why is the lingering effects of the housing boom and bust.”
Speaking to attendees all too aware of the slumping construction sector, Bauer remarked, “The housing market is always a big contributor to any recovery, but we haven’t had that strength in the housing sector.”
Another contributing factor mentioned by Bauer included a low level of business confidence and, subsequently, business investment. He said such investments in software and IT equipment were strong early in the recovery, but even then largely did not carry over into more hiring or new construction.
Now, ongoing federal budget battles, high commodity and energy prices and uncertainly regarding health care costs and obligations are all working to erode business confidence.
For the construction sector, the federal budget uncertainly is particularly troublesome, especially in the Mid-Atlantic region. “A lot of construction involves federal spending in this region,” noted Bauer. “If the government shuts down, that’s a problem.”
Regarding the lack of new jobs in the economy, Bauer again pointed to the critical role of the construction industry, a sector from which one out of five job losses stemmed, “about 2 million out of 9 to 10 million,” said Bauer.
Construction unemployment rates in Sunbelt states in particular remain at historic highs, with Arizona, Florida and Nevada facing having shed from 38 percent to 50 percent of their construction industry jobs in the past three years.
Companies in many other manufacturing and service sectors have been able to return to profitability and even growth, said Bauer, although they have done so without widespread hiring. “Businesses found ways to survive by becoming more efficient [and] doing more with fewer workers,” he commented.
Regarding the future, Bauer expressed concern for any quick rebound in the home building market. One problem is the inventory of “excess” housing units, which Bauer said has remained in a range of 2 million to 4 million homes (depending on whose study one chooses) since 2006.
As well, new household formations are not at an adequate level to absorb that inventory, and young people and young couples are not showing an eagerness to buy a first house. “For a lot of younger people, the last thing they want to do is buy a house,” said Bauer, “because they just saw this train wreck of a housing market. They’ll rent, thank you very much.”
Public construction spending peaked in the first half of 2010, according to Bauer, and ongoing budget woes at all government levels remain an issue.
On the brighter side, Bauer said, “We’re seeing additional money flow into the commercial real estate sector [and] architectural billings are at or near the 50 index level—back to a pre-recession level.”
The 2011 C&D Recycling Forum was Sept. 25-27 at the Turf Valley Resort and Conference Center in Ellicott City, Md.