Good news: March housing starts soar 19%
Low national employment in construction and government are large factors responsible for the bleak recovery so far, economist Floyd Norris wrote in the New York Times. In previous recoveries before 1990, construction was often a leading contributor to economic growth. According to Norris, this was because earlier recessions were often caused by the Federal Reserve bank pushing up interest rates, leading to a cut-off in the supply of mortgage credit. As a result, when banks could lend again, construction activity would increased markedly. In this case, construction is down in spite of low interest rates, as easy credit led to significant overbuilding. The slump in construction employment, beginning in 2006, has continued, even after the National Bureau of Economic Research concluded that the recession was over. Overall construction employment is down 28 percent from its peak, Norris noted, when previously, the largest postwar decline had been 18 percent between 1974 and 1975. Spending on roads, bridges and schools could turn the numbers around, some economists point out. “The need for infrastructure spending is as great as ever, if not greater, than in the entire postwar period,” Henry Kaufman, who runs his own advisory firm, told Norris. But given the political climate in Washington, D.C., more stimulus spending that could spur such activity is unlikely, Norris wrote. [NYT]
