By Anirban Basu, Associated Builders and Contractors

While construction businesses may feel like they’re on the verge of their “19th nervous breakdown,” only seven recessions have actually occurred since that Rolling Stones tune hit the charts in 1966. But the song expresses some of the dread brought on by steady deterioration, which is precisely how the nation’s economic performance can be categorized.

A recent Federal Open Market Committee statement betrays a greater level of frustration with the pace of recovery than has been apparent since the recession ended roughly one year ago. Correspondingly, monetary policy is likely to be more accommodating going forward; the only question is the extent to which the money supply will occur.

The Federal Reserve is set to purchase more debt by redirecting funds acquired from the sale of mortgage-backed securities to the purchase of Treasury-issued securities. To help stabilize the housing market, the Fed invested approximately $2 trillion in mortgage-backed securities and other related investments, and it has been remarkably successful in selling off what it purchased. As of October, the goal was to purchase roughly $10 billion in U.S. debt each month for the next several months. While that is not an enormous sum, it is a clear signal to the marketplace that the Fed remains willing to intervene to stave off another recession.

Policy Support May Not Be Enough
In truth, there is little left for the Fed to do without dramatically increasing the risk on the central bank’s balance sheet. The Fed’s shift to purchasing high-quality bonds will reduce associated yield further, but will not solve ongoing issues in high-yield debt markets. Moreover, a variety of key interest rates, including mortgage rates, are already at historic lows. Lowering these rates further probably won’t make much difference to the economy; however, another round of refinancing is anticipated across the United States—largely in healthy housing markets where owners retain some home equity.

For its part, the federal government continues to support economic activity. In certain categories, less than half of the monies associated with the American Recovery and Reinvestment Act of 2009 (ARRA) have been spent. This is particularly true in the infrastructure category, and much of this money will be spent in 2011.

Prior to the mid-term elections, Congress and the president indicated they were willing to step in to provide even more economic assistance. In late July, the U.S. Senate voted 59 to 39 in favor of a bill that retroactively pays for extended federal benefits through November at a cost of about $34 billion. (Approval by the U.S. House of Representatives and President Obama soon followed.) More than two million people had lost their benefits after federal unemployment insurance extensions started to phase out at the end of May, according to the U.S. Department of Labor. Had Congress and the president not intervened, this number would have risen to about 3.23 million by July 31, an indication of just how weak hiring remains. 


Efforts to reinvigorate the economy didn’t end there. On Aug. 4, the Senate cleared the way to provide $10 billion to school districts to prevent teacher layoffs and an additional $16 billion in federal aid to cash-strapped state governments.

Policymakers’ recent fiscal actions make a near-term recession less likely, but growing evidence shows the U.S. economic recovery is stalling. In fact, much of the recovery to date has been temporary in nature.

Most companies have not experienced a good year since 2008, when nonresidential construction volumes peaked. Overall payroll employment declined again in September by 95,000 as the ongoing dismissal of census workers, coupled with declines in state and local government employment, contributed to a reduction of 159,000 in government payrolls. Private employment grew by 64,000, less than expected and the lowest total since June. Unemployment remained at 9.6 percent in September.

Optimists can take heart in the continued expansion in private sector employment. Through September, the nation added private jobs for nine consecutive months. Unfortunately, many of the 863,000 jobs added are temporary and fall within the nation’s business services category. During the first nine months of the year, construction shed 92,000 jobs, and the construction unemployment rate stood at 17.2 percent—nearly twice the overall national average. Moreover, at least some of the construction jobs created during this period are attributable to stimulus-related spending, with the implication that many of these jobs will not be permanent.

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