by Jim Haughey
Reed Construction Data Chief Economist
What might cause a second recession in 2011 when forecast models are broadly forecasting GDP growth of 2-4% in mid-2011? It is the belated recognition of loans in default or about to default. This includes commercial mortgages, European sovereign debt, state budget and pension debt, the soaring debts of state unemployment insurance funds, student loan bonds and more bad residential mortgages…
…Reed Construction Data believes that the current financially troubled debtors will be allowed to stretch out whatever they do to reduce their debt for long enough that reviving growth in the private economy will be strong enough to cover their negative impact on growth. GDP growth will continue at a subdued pace and construction spending will turn positive at about yearend.
But note that a decision to take our lumps quickly and get them behind us would push the risk of a double dip recession to near 50% and postpone the expected turnabout in construction spending for at least 2-3 quarters. There is little probability that Congress will do this four months before an election…
…There is little risk of a GDP decline until next spring because the current expansion momentum, while weakening, is strong enough to persist for at least three more quarters. Planned inventory expansion is continuing in manufacturing and distribution. It would take several quarters for the inventory additions to become “unwanted” and for production schedules to be cut to trim inventory.
Click Here to view the RCD Economic Insight and Analysis of Construction Industry Trends.