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Why exactly is 0.6 percent rise in construction spending important?

I asked the above question to some construction financial managers and executives via LinkedIn. So far I have not received any responses. I wanted to see what other executives that may not be in the construction industry think. Any economists or otherwise brilliant people have any insight? I read an article that stated in July 2013 a 0.6 percent increase in construction spending was the largest in four years. Why is this something to be celebrated? It reminds me of interest rates that banks are paying now. I have seen banks advertise their “excellent” rates on CDs being nearly 2 percent. Why is that something to advertise? Historically CD rates have been much higher than that. The same is true for construction spending. Construction spending according to the Census Bureau was nearly $1B in 2004, then exceeded $1B in 2005-2008, these figures are overall, not focusing on particular sectors. My thought is that if one sector of construction does well, much of the time others will follow. There are swings in certain sectors of construction according the article that leave me with the view that while some are doing better, others are doing worse. The net effect is close to zero. Anirban Basu, chief economist for ABC, is a brilliant man. I wish I had half his brilliance regarding construction and economics. But seriously, does a 0.6 percent increase, which is only $6,000/$1M really merit much touting? I am open to your insight on why this data is favorable and should be considered favorable. I certainly need a little more education on the optimistic view of the largest increase in spending in four years. http://enewsletters.constructionexec.com/managingyourbusiness/2013/09/construction-spending-rises-0-6-percent-in-july/?utm_source=vol_no._2_issue_18&utm_campaign=managing_your_business&utm_medium=email_newsletter&utm_term=title_article_1&utm_content=dda5eb82251cfb0f61677ae59c3a5812-1

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Think about all the industries and companies tied into construction.

From lumber to Kleenex and every way in between.

The new housing market is one of the major drivers of our economy.

Anonymous User
Title: CFO
Company: Local Government Agency
(CFO, Local Government Agency) |

"The new housing market is one of the major drivers of our economy."

Wayne:

I hope you're wrong about that or, we'll soon be rebuilding a bubble. Diverting large amounts of capital through public policy to the construction of personal residences creates serious market distortions and hinders US competitiveness with the rest of the world.

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

I agree with Wayne. Housing is a key driver to the economy and the world economy. The housing bubble was created because of credit hubris, i.e. a lack of risk management. If I buy a new home today, most likely I will need a new washing machine. I will take trips to the hardware store to buy materials to make the house my home. As such, my home purchase will impact GE and Home Depot.

Not sure I understand Tom's public policy reference, or Wayne's Kleenex reference.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Just think about all the mundane items you need to buy (in abundance over a typical apartment) when you have a home.

You are buying not only quantity because you may need its because you have more rooms, but in quantity because you hopefully have more storage.

This all drives the economy.

Anonymous User
Title: CFO
Company: Local Government Agency
(CFO, Local Government Agency) |

"Not sure I understand Tom's public policy reference"

Fed created, low interest rates to keep mortgage rates artificially low along with multiple incentives, many income taxed based, that encourage home ownership. This diverts the nation's capital that would otherwise be used elsewhere, such as in growing businesses, to the procurement of a personal residence.

http://usatoday30.usatoday.com/money/economy/housing/2010-08-11-housing11_cv_N.htm

That is but one tiny commentary. There are plenty of other stories/sources of information about the distortions this causes out there.

From my perspective, there was a lot more involved in the housing bubble than just lose mortgage credit standards that the Feds encouraged.

Topic Expert
Christie Jahn
Title: CFO
Company: Prime Investments & Development
(CFO, Prime Investments & Development) |

I think there is also another view although Wayne is spot on regarding the housing market driving the economy, but if contractors start building houses again, that means there is demand. Demand for new homes means consumer confidence because people are willing to spend the money on a new home. Over the past several years that has not been the case and land has sat vacant and contractors in the remodeling industries were booming as people could afford to spend a few thousand to have that bathroom or kitchen remodeled rather than risk buying a new home and taking on more debt. We are seeing new homes being built in our area all over the place, where once the building sector was eerily silent.

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