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Basu: Key is ‘stimulus, stimulus, stimulus’

Anirban Basu, chief economist for the national Associated Builders and Contractors, could offer little encouragement to attendees of the Mississippi Associated Builders and Contractors’ Merit and Safety Awards banquet held recently in Jackson. TED CARTER / Mississippi Business Journal

With 2011 less than 60 days away, Mississippi’s builders and contractors must get accustomed to a less-than-inspiring prediction for next year’s business climate: ”Less worse but certainly not terrific.”

“Less worse” came as close to actual encouragement as economist Anirban Basu could get in a presentation to several hundred members of the Mississippi Associated Builders and Contractors gathered at the |Jackson Convention complex Friday, Nov.5, for the merit shop organization’s Merit and Safety Awards banquet.

On the positive side, said Basu, “less worse” represents the likelihood that 2011 won’t be a repeat of 2009, when Mississippi lost 16,000 jobs, including 3,300 in construction.

Think of “less worse,” Basu told the crowd, as “the new excellent.”

For instance, less worse is a 17 percent unemployment rate for the construction trades after it had climbed to 27 percent at one point, he said. In 2009, the sector had 20.1 job seekers for every job opening, the economist added.

In a quick rewind, he called 2008 the year of lost liquidity and demand, 2009 a year in which he could not utter one word of optimism and 2010 a year of stalled markets and anemic Gross Domestic Product growth.  And now, with 2011 closing in, more of the 2010 picture is in store, he said. “That’s what we’re observing.”

Basu, chairman and CEO of Sage Policy Group in Baltimore, is chief economist for the national chapter of the Associated Builders and Contractors.  He released his 2011 forecast a couple days after his visit to Jackson.

“The period of rapid improvement in spending levels did not begin in 2010, and will not happen in 2011,” Basu wrote in his new forecast.

“ABC’s forecast of nonresidential construction spending for next year suggests that total spending will be 0.1 percent less than 2010 levels. Privately financed construction levels are projected to decline 0.2 percent while publicly financed construction levels are projected to be virtually flat. The bottom line is the nonresidential construction recession is largely over, but 2011 will be associated with grudgingly slow progress.”

Whatever recovery that has occurred in nonresidential construction has been concentrated in projects and work closely tied to federal funding and the stimulus package passed in Feb. 2009 in the midst of the recession, Basu noted.

That’s why spending rose simultaneously last year in five nonresidential construction categories monitored by the U.S. Census Bureau — conservation and development, water supply, sewage and waste disposal, and highway and street and transportation.

By contrast, a lack of available capital caused year-over-year declines in 11 nonresidential construction sectors unrelated to federal spending, he said. “The deepest downturns registered in construction were related to lodging, manufacturing, office and commercial. ABC expects that the lack of access to capital will continue to deter economic progress in 2011, and is forecasting 1.7 percent GDP growth next year despite ongoing federal stimulus funding and the expectation of a more expansive monetary policy.”

Basu emphasized the importance of federal pump-priming in his presentation in Jackson, leading off a list of key elements to recovery with “Stimulus, Stimulus, Stimulus.”

But the next round of stimulus, if one indeed occurs, should be more closely focused on building up key infrastructure such as seaports and airports, high-speed rail, the nation’s electrical grid and the country’s ability to explore for natural gas, he said. What doesn’t need to be repeated, Basu said, is the Obama administration’s obsession with road resurfacing.

“This was the largest missed opportunity in our lifetimes,” he said of the stimulus, and emphasized that a new injection of federal spending genuinely targeted toward infrastructure could help the nation dig out of an enormous hole it has dug for itself.

A further drag on nonresidential construction will come this year with steep cuts in spending by states and local governments, Basu told the Jackson audience. The layoffs and elimination of capital projects will bring the fastest shift in jobs of any segment of the economy, he said. “States and local governments are giving back jobs. And that’s more problematic.”

The economy is feeling further pain inflicted by the dropping of the oft-mentioned “other shoe” in the commercial real estate sector, he said.

But not all is bleakness, Basu added. Architects are busy — and that’s good news for  builders and contractors in Mississippi and elsewhere, he said.

“If architects are getting more work in the upstream, contractors are going to get more work in the downstream. In 14 months, you should generally be busier.”

Nationally, ABC has lost 50,000 jobs this year, according to ABC economic report. “ABC does not see nonresidential building employment rebounding until 2012,” Basu said in the national forecast.

“However, ABC predicts that residential construction employment will grow substantially as the number of housing starts will expand by roughly 25 percent,” he said.

In terms of segments poised to experience construction spending growth in 2011, ABC projects that power will lead the way, with spending rising by an anticipated 5.5 percent.

In summing up his forecast, Basu said ABC expects that 2012 will be better for privately financed construction. Credit conditions will improve by that point as large, well-capitalized banks become more aggressive in their pursuit of industry market share. Finally, certain leading indicators have turned the proverbial corner, including ABC’s Construction Backlog Indicator, which has been indicating a steady improvement in the commercial and industrial construction outlook.

On the jobs front, he projected overall national employment to rise to 10 percent before peaking at 10.7 percent.

In its awards presentations, the Mississippi Associated Builders and Contractors named Ted Dearman, senior vice president of the Yates Companies, Construction Person of the Year and U.S. Sen. Thad Cochran (R-Miss.) Industry Person of the Year.

The Mississippi ABC chapter has 1,100 members representing 66,000 non-union construction and construction-related workers. This year, it came within 12 percent of hitting its membership goal. “The national chapter will tell you that’s exceptional,” said Robert Pooley, the organization’s 2010 chairman.

Pooley, in remarks before passing the gavel to Jim Hardin, the 2011 chairman, urged members “to continue to be vigilant in promoting our pro-growth, pro-jobs agenda.”

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