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SOTU’s Three Construction Sidebars

Jan 21, 2015

On Tuesday evening, January 20th, President Obama delivered his 2015 State of the Union (SOTU) address, live in front of a packed Congress and televised to a world-wide audience.

2015 01 21 US Oil Graphic

After the Democrats were taken to the woodshed in last November’s mid-term elections, there was speculation Mr. Obama might appear downcast in his presentation style.

Far from it. He came out swinging. On domestic issues, he laid out a socially liberal program of further tax hikes for the wealthy and breaks for everyone else, while touting the success of what he called ‘middle-class economics’. In foreign affairs, he sought support for further military action in the Middle East.

Cognizant that he won’t get all he wishes for, he set out a possible roadmap for his successor as head of the Democrats to follow in an attempt to win over the electorate in 2016.

Listening to his speech, while trying to stay attuned to the implications for construction, I came away with three sidebars. Let me take you on a slightly meandering path to my conclusions.

(1) The President opened aggressively, with the following words: “ America, for all that we’ve endured; for all the grit and hard work required to come back; for all the tasks that lie ahead, know this: The shadow of crisis has passed, and the state of the Union is strong. At this moment – with a growing economy, shrinking deficits, bustling industry, and booming energy production – we have risen from recession freer to write our own future than any other nation on Earth.”

The media commentators covering SOTU keyed on this passage. I can’t find much fault with it. The U.S. economy has been performing better than generally recognized or acknowledged since the second quarter of last year.

Earlier on January 20th, the Census Bureau and the Department of Housing and Urban Development (HUD) released the latest U.S. housing market data. New home starts for December 2014 were once again above 1.0 million units (seasonally adjusted and annualized or SAAR), as they have been in five of the last six months. The annual starts total for all of 2014 was 1.006 million units, an increase of 8.7% compared with 2013’s 945,000 units.

Multi-unit starts in 2014 rose 16.4% year over year to a level of 358,000 units. The increase in single-family starts was a more modest 4.9%, as they reached 648,000 units.

At present, multi-family starts have nearly returned to their long-term ‘normal’ level. Single-family starts, however, remain well below their pre-recession pattern.

Throughout the coverage of SOTU, there were numerous references – by the President and others − to the dramatic improvement in the nation’s unemployment rate. It has fallen from 10.0% when Mr. Obama delivered his first SOTU, to a current level of only 5.6%.

If single-family housing starts were back anywhere near their previous ‘norm’ (i.e., approximately 1.2 million units), with all that would mean in terms of extra employment, the economy would almost assuredly be overheating.

(2) Shortly before the halfway point of his SOTU speech, the President said the following: “21st century businesses need 21st century infrastructure — modern ports, stronger bridges, faster trains and the fastest internet. Democrats and Republicans used to agree on this. So let’s set our sights higher than a single oil pipeline. Let’s pass a bipartisan infrastructure plan that could create more than thirty times as many jobs per year, and make this country stronger for decades to come.”

My attention grew keener at the mention of “a single oil pipeline”. His reference was clear. The White House and Republicans have long sparred over whether or not Keystone XL should be approved.

The President’s intent, lent further force by his inflection, was clear: “Listen Republicans, forget about Keystone. If you pass go-ahead legislation, I’ll exercise my veto anyway, so let’s move on to other projects.”

He may not have realized it, but his actual words can be interpreted entirely differently. 

It’s “a single pipeline”. Precisely. A new one among thousands of existing ones. What’s the big deal?

Playing to the environmental faction within his own party, the President has consistently shown a willingness to come down hard on Alberta’s Oil Sands producers, despite the fact many of those firms have head offices in the U.S.

On that score, he’s fallen behind the times. The princes of Saudi Arabia have instead stepped into the job, with their deliberate strategy of lowering the global price of oil from $110 USD per barrel to $45.  

Referees, pull out your penalty flags. In football parlance, there’s no longer a need for Mr. Obama to ‘pile on’.

The kerfuffle over lower oil prices obscures the fact the U.S. is still dependent on foreign sources for about one-third of its needs. That neuters the argument that Keystone will simply pipe crude to the Gulf of Mexico for export. Why export, when there’s still a need for imports? 

It’s also hard to explain why more of the ‘one-third’ shouldn’t come from Canada rather than Saudi Arabia. Put people to work in the plains states of America building the final leg of Keystone XL.

For sidebar (3), we turn to the President’s proposal to make attendance at community colleges free throughout the U.S.

Such a program has already been successfully implemented in the Republican stronghold-state of Tennessee and the Democrat-controlled city of Chicago.

Still, few expect this proposal to receive bipartisan support in both houses of Congress.

If it ever does become a reality, it will increase the demand for community college academic-space well beyond the existing stock.

A higher proportion of young people, facing huge university tuition costs, will seek schooling with a more practical bent (e.g., in the construction trades, etc.).

Preparing young adults to better compete in the job markets of tomorrow is a good thing, surely? 

But wait a second. While it shouldn’t get in the way of innovative thinking, there is a phenomenon called ‘unintended consequences’ that needs to be explored.

If more students begin attending community college, there will be fewer of them on university campuses. For faculties to maintain an adequate revenue stream, will already sky-high tuition fees need to be jacked up even more due to a declining enrollment base?

Or will the share of student bodies made up of foreign students from wealthy families overseas, which is already rising, be forced by necessity even higher?  

The SOTU presentation is wonderful spectacle. Watching it helps explain why there are so many political junkies in the broader population. The moves and counter-moves to achieve ‘checkmate’ by the ‘alpha’ individuals at the pinnacle of the government-sector game are worthy of chess-masters.



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