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“Eagerly Awaiting the U.S. Economy to Say, 'I am Mighty, Hear me Roar!’"

Chief Economist: Alex Carrick


CMD Construction Data Chief Economist Alex Carrick discusses how current developments in the US and Canadian economic environment will bring opportunities and challenges for designers, contractors, and materials and services providers.

A Dozen Mid-November Economic Nuggets

Nov 13, 2014

I’ve written a great deal lately about how the most recent numbers confirm an improving U.S. economic base. Therefore, in this “Nuggets”, I’ll concentrate on significant and sometimes overlooked items that have been appearing in the editorial copy below the headlines.

(1) Let’s get some statistics out of the way first, though. U.S. total employment rose by 214,000 jobs in October and the overall unemployment rate fell from 5.9% to 5.8%. For the construction industry, the jobless rate dropped to a quite-tight 6.4%, compared with 9.0% a year ago, even though the number of workers in the sector is still nowhere near as high as before the recession. Nevertheless, labor rates are moving upwards. Average hourly earnings in construction in October were +2.5% versus +2.2% for all industries. Average weekly earnings for construction, at +3.8%, were a full percentage point higher than for the national all-industry average of +2.8%.

(2) In the mid-term elections, the Republicans won control of the Senate. Depending on the results of a run-off vote in Louisiana on December 6, they will hold 53 or 54 seats in the 100-chair assembly. The GOP has also increased its dominance in the House. Previously, President Obama had a prickly relationship with his opponents. Reporters are going to have fun trying to find a new word to describe his next dealings with Congress within the altered balance of power.

(3) Do good things come to those who wait? With the Republicans in charge on the Hill, will TransCanada Pipelines finally win a go-ahead for the northern portion of its Keystone XL Pipeline project (a.k.a., KXL)? Authorizing bills are likely to be forthcoming, but they will require two-thirds super-majorities in both the House and the Senate to overcome a potential Presidential veto. That won’t be a problem in the former, but in the latter, it will require 67 ‘yes’ votes, implying a need for support from a dozen or so Democrats. Good luck with that.

(4) Only one man knows if KXL will receive a “green light” for sure, President Obama. Maybe he’ll want to use his veto power as a bargaining chip in his negotiations with Republicans over immigration reform. Or maybe he’ll say ‘no’ whatever the circumstances, in order to solidify his reputation as the nation’s premier carbon-emitting fossil-fuel fighter. He’ll have trouble selling that image to posterity, however, given the degree to which “fracking” has increased exponentially during his stint in the White House.

(5) There have been many occasions over the past 50 years when the U.S. and Canada would have given just about anything to possess shared self-sufficiency in energy. That opportunity is now within grasp. (Europe, with its too-great reliance on Russian energy supplies, must be feeling envious.) U.S. outsized dependence on OPEC supplies has carried the cost of entanglement in Middle Eastern political shenanigans and military conflagrations. The opportunity to realize North American energy independence is at hand. It’ll be a shame if it’s squandered.

(6) There’s a shortage of cement for construction projects in Michigan. The problem is apparently one of logistics. Cement is usually delivered to customers in the state by freighter, but the Great Lakes nearly froze over last winter, pushing spring schedules back. By the time alternative arrangements were being made to ship cement by rail, most track capacity was already committed to carrying oil away from the Bakken shale-rock deposit in North Dakota. A similar situation arose earlier this year when the supplies of coal for electric power plants were squeezed off rail carriers, also in favor of oil.

(7) In Canada, Parliament has been forced to step in and legislate that a certain percentage of rail capacity be set aside to deliver Prairie wheat and other grains to Pacific ports. Again, tanker cars have been displacing bulk carriers on the “ribbon of iron”. This is just another example of unintended consequences. When the “natural” order is upset ‒ which is to say, when pipeline construction is put on hold ‒ there can be surprising and unpleasant side effects.

(8) Speaking of railroads, another bottleneck deserves exposure. Most east-west and much north-south cargo traffic goes through Chicago.  A failure to reach a comprehensive agreement on track sharing, combined with out-of-date routing systems, is presenting dispatchers with a nightmare. Some of the motivation for CP Rail’s recent attempt to acquire the assets of CSX Corp. was to mesh the former’s operations in the north and west with those of the latter in the east and south. Maybe just as important, however, was CP’s fond hope that it would be able to use existing CSX lines to circle around and avoid Chicago altogether.

(9) CMD’s Industry Snapshot report for November, which sets out U.S. construction starts through October, was mostly upbeat. Year-to-date non-residential building starts were +7.5% versus the first ten months of 2013. Most sub-categories are experiencing cyclical climbs. One, however, is lagging. Uncertainty surrounding the introduction of Obamacare has held back initiations of hospital work. A new wrinkle, as described in point (10), is about to make life more miserable for financial managers at medical facilities.

(10) Prior to the Affordable Care Act, Washington was funding a certain portion of the costs tallied by hospitals when they were looking after the uninsured. One corollary of the new era of health care is expanded Medicaid for society’s poorest individuals and families. But states have to choose to opt in. Because both insured and Medicaid health coverage is being widened, the Affordable Care Act stipulates lower allocations for the uninsured. In those states, mainly Republican-controlled, where there has been no adoption of expanded-Medicaid, some hospitals may soon see significant financial shortfalls.

(11) Even as the U.S. Federal Reserve is putting a stop to its extra bond-buying activities, the Bank of Japan (BOJ) is upping its already massive quantitative easing (QE) program by one-third. The BOJ and the Tokyo government’s major pension fund will also be buying exchange traded funds (ETFs) and REITS. This will be in aid of keeping interest rates low, reducing the value of the yen and importing inflation ‒ which is all fine and dandy except if you’re China or South Korea or some other emerging Asian nation competing against Japan for export sales.

(11) Do you want to live in prime real estate in London, Hong Kong, Paris or Tokyo? At $4,132 USD, $4,028, $2,273 and $1,684 per square-foot respectively, CBRE Ltd. has identified those cities as among the priciest in the world. On second thought, maybe it would be better to stay put. In that case, though, be aware that New York ($3,718), Los Angeles ($1,839), Vancouver ($1,555) and Toronto ($1,392) will cost you a pretty penny as well.

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