Archive for March, 2011

Will the Japan Earth quake affect the us?

Thursday, March 17th, 2011

In an Article by Jim Haughey – Mar 14, 2011

Japanese earthquake will have marginal negative impact on US

Jim Haughey, RCD Chief Economist

Jim states, “Unlike Haiti, Japan will, clear the rubble and begin rebuilding very quickly so the impact will shift from short term to long term within a few months. The economic impact in Japan will obviously be larger. The Japanese economy has been sluggish recently so the earthquake will cause a one or two quarter recession and reduce world GDP growth in 2011 a few tenths of a percent from the previously estimated 4.5%.”

Jim also wrote, “World commodity prices have already begun to weaken and will provide some near term relief to US contractors, especially for metals.  This is the result of Japanese factories being forced to shut down for lack of electricity. Probable rolling blackouts for several months will keep manufacturing output and materials use restrained for several months. Lesser price weakness is likely briefly for lumber – Japan is a large importer from North America. The impact on oil prices is uncertain and, in any case, will be overwhelmed by whatever happens in the Middle East.  No price decline is expected for cement since US imports are now quite low and increased Japanese cement use for transportation rebuilding will begin very quickly. These commodity price declines will be very brief – 1-3 months – and then will reverse when widespread rebuilding begins.”

There may be a ripple effect on us production though. The loss of electric generating capacity in Japan is the key risk to the US economy and construction through the yet unknown restraint on Japanese manufacturing. The nuclear generation sites where the quake hit will appear unlikely to be restarted. Nuclear energy provided over 35% of Japan’s electricity. The unavailability of a single small part can cause production shutdowns and layoffs at US machinery, auto or electronics plants.

Jim  believes The United States consumer and business confidence can absorb the earthquake and tsunami with no measurable impact.  But nuclear meltdowns, even if contained, are more disturbing.

Within a few months the ramp up of the rebuilding process will reverse the weakness in commodity prices and put upward pressure on borrowing costs as Japan draws back some of its short term financial investments in the US to finance the rebuilding. By summer short term borrowing rates will be at least 10-15 basis points higher and much of this will also creep into long term rates.

Clearing rubble and rebuilding is very equipment intensive. The US construction equipment market is already surging at a double digit pace with inventories more than adequate but not significantly in surplus.  This a world market so higher equipment needs in Japan for several years will spill over into slightly higher prices in the US for both equipment buyers and renters.

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Housing Market Outlook

Monday, March 14th, 2011

NAHB Chief Economist David Crowe recently testified before the Senate Banking Committee. He pointed to several indications that conditions in the housing market should show modest improvement in the coming months, including: 1) an improving economy and continued job growth; 2) low mortgage rates that are keeping housing affordable; 3) stabilizing home values and 4) three years of sub-normal household formation rates that have created pent-up demand to help reduce some of the excess housing inventory.

NAHB forecasts indicate that new-home sales will rise by a modest 8% to 347,000 units in 2011, followed by a more substantial 49% gain next year to 516,000 units. Single-family housing starts should follow a similar trend, gaining 15% this year and 47% in 2012, which will raise the pace of single-family starts to 900,000 units by the end of next year. While this would amount to a significant boost from today’s subdued activity, David noted that it is still 40% below NAHB’s estimate of the long-term sustainable trend, based on demographics, replacement needs and second-home demand. Meanwhile, multifamily housing starts, which have experienced great volatility in recent months, are projected to increase 21% in 2011 and 40% in 2012, rising to 210,000 units in the fourth quarter of next year, which is still 38% below NAHB’s estimate for long-term sustainable growth.

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Contractor’s Add Jobs in February

Thursday, March 10th, 2011

Contractors hire 33,000 workers in FebruaryJim Haughey, RCD Chief Economist

Overall employment rose 192,000 in February and the job count was revised up 58,000 over the previous two months. The distribution of job gains is consistent with sustained job growth in the 150,000-200,000/month range.

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