Did Someone Say The Recession Is Over?

It was announced by the federal government that the recession ended in June 2009. That is 15 months ago.  Why do I have a difficult time in believing that?  My recession events calendar still has it continuing.   My forecast for the construction industry is that a meaningful recovery, not just an announced recovery, will not start until late in 2011.

My calendar of events show the slow down in the economy started in October 2007.  This slight slowdown continued until September or October of 2008.  The recession began in earnest at this time.  The next recession milestone came in June/July of 2009.

This was a continued slide in the construction industry.  Projects were eliminated, delayed or reduced in scope.  The entire construction community, from design through commissioning, was taking steps to reduce the impact of the recession.  This involved reductions in staff, hours, pay and other costs.  Owners and developers were not making money or taking steps to take advantage of the lower construction costs.

In 2009 banks and other financial institutions were in no mind to lend significant amounts of money for capital projects.  The pressure was on to “cleanup” their balance sheets. This contributed to further declines.

Flash forward to now. Companies have been making money but are reluctant to spend it on capital facilities, let alone other expenses.  It appears they are accumulating and preserving cash as a significant part of their assets.  It has been a slow year for bidding and obtaining projects in the United States.  Private work of any consequence is substantially reduced.  The Stimulus was anything but a help to construction.  Backlogs with contracting firms are rife with low to unprofitable work and at some of their lowest levels in recent memory.

The winter construction season lull is approaching.  Outdoor work will be reduced.  This reduces cash flow.  The number of projects available for bidding will be reduced, not just due to seasonal trends.  This reduces work in the spring.

A reduced number of projects to bid will bring out the worst in the bidders for pricing.  Already projects are being bid below cost.  Sometimes it is as large as 30% to 40% below cost.  Contractors and others are going out of business because of the poor practices in bidding and managing the work.  Where will it go from here is anyone’s guess.

Yes, the recession has been declared as being over.  Is it really?  Not by a long shot!  I’m not the only one to think so –  Warren Buffett is saying the same.  I guess great minds do think alike!

Construction – Are Things Picking Up, If So Why?

I have seen a slight increase in our business. This is a slight increase and it is limited in scope.  My company provides estimating and scheduling services to contractors and owners.  It is not just in one market segment and it is through out the Untied States.  I am treating this increase as a blip in the still downward movement of the construction industry’s project count and dollar volume.

I am treating it like a blip for a couple of reasons.  Blips are a normal occurrence for downward trends, just like dips are on an upward trend.  As far as I am concerned, this has not been a double dip recession, just a slide with blips.  I am still wary that the bottom has not been hit and will not be hit until months from now.  For what it’s worth I am looking to late 2011 for signs of sustaining improvement.  I hope this is wrong and it is sooner.

The limited increase for us is with companies that have postponed projects for so long they cannot be postponed any longer.  I would categorize this as generally being in the power and industrial areas of our economy.  These projects may not be available to contractors for months.

Some of our work is obtaining new clients, not an increase in the construction business volume.  Contractor work loads have not picked up to any significant degree.  While I always appreciate new clients, there are some that no longer have the capacity for estimating or scheduling with their staff.  Staffing for the peaks in our business has not been practical for years.  Staffing for the valleys is not always appropriate but more of the norm in this day and age.

My thoughts are the uncertainty of legislation coming from Washington DC is causing our economy to wither.  Companies are making money but not spending it on capital projects.  They appear to be hoarding their cash due to this uncertainty.

What are your thoughts?

The Economic Rebound Is Here?!

The other day I was in a conversation with a friend that is involved in banking, he wondered how Tempest Company was doing.  I said it was tough but we were still in business.  He said we were better off than a lot of other companies that were out there.  Many were in the process of going out of business and others were lining up to join them.

Omaha, NE is supposedly one of the bright spots in the United States.  If that is the case, why is the level of unemployment in the construction trades at 40% or more?  I have been told by others in construction that their areas of the country have the same high level of unemployment.  So what areas of the country have such low unemployment that the national average is only 20%+ according to the feds?

Omaha, and other areas of the country, are seeing desperate contractors, subcontractors and vendors quoting work 30% to 40% below cost on all sizes of projects.  If the economy is on the rebound why can’t the contractors take work at reasonable prices? We are hearing about the manufacturers telling their distributors and wholesalers to watch their receivables.  They are warning them of contractors that are such poor business operators that they do not even know they are bankrupt yet.  Isn’t the Stimulus Spending bringing us back to prosperity?

I look around areas of the country and read reports to see there are companies earning profits.  I also see that they are not spending this money on additions, renovations or maintenance items – by choice.  I drive around the country and see that malls, shopping centers and other commercial establishments have few cars in their parking lots – at all hours of the day.  If the economy is getting better, why are they not spending the money?

I have spoke with people in the power generation sector.  They haven’t been able to build new plants, add to or significantly modify existing plants for several reasons.  A lot of the reasons involve federal regulations, among them the potential for the Cap & Trade (Cap & Tax) becoming law. With electricity demand down so much they have not had brownouts or resorted to rolling black outs.  I guess it’s a good thing we are in a recession!

Oh, By the Way… According to the federal government our economy is on the rebound.  Manufacturing is up.  Home sales are up.  The Consumer Confidence Index and other indicators are all up!  Unemployment is down.  I believe what they tell me!  Yeah, right!

 

High Speed Rail Transportation Stimulus (Pork Barrel)

I really, really like trains.  I like real trains so much I have a scale train system in my office building (G Scale for you train fans). 

According to USA Today on the web, the federal government is planning to outlay up to $10 billion in stimulus funds for high speed rail projects.  What will $10 billion get you?  Nothing too soon and not much by my calculations!  In today’s dollars it will get you a nine mile tunnel from New York to New Jersey that takes six years to build! You may get a bit more but I think the tunnel may be another Big Dig so you will probably get less.  Construction people and companies will get the short end of the stick, as will the taxpayers.

First, there is an issue of where to locate the projects.  Do they go from Washington, DC to New York?  What about Seattle to Portland or New Orleans to Chicago?  Why not Los Angeles to Denver?  Where are the stops going to be located on these routes?  Who gets to chose them?  If nothing else, the federal government takes their own sweet time and can spend like nobody else on studies!  They are also known to rush to spend so fast it is foolish!

Next there is the issue of right of way.  Just where will the tracks be laid for this system?  The existing United States rail system is unsuited to true high speed rail as show cased in Europe and Japan.  The high speed systems in these countries are based upon separate tracks without grade crossings and methods to prevent “obstructions” impeding the flow of traffic.  High speed rail means no deer will be allowed to cross the tracks let alone the occasional stray pedestrian, car or truck.  Will each route have two-way rail traffic?  We might just need some more study on these matters.  Perhaps we ought to compromise on the words “high speed rail” and call it “not much faster rail” if they are not resolving these considerations. 

It also may mean the existing railroads might want a say about right of way.  I would suspect they would like more of a say than Chrysler or General Motors had in their situations.    This means purchasing land or right of way from private companies and individuals.  How long will these negotiations take place?  Let’s not think eminent domain just yet.

While negotiations for right of way are underway, perhaps design can start.  How many years down the high speed railroad path will it take for this to occur?  How long will it be before the first rail can be installed?  Who gets “first dibs” or preference for the routes?  The first transcontinental railway required over six years to construct and cost billions in the 1860’s.  What will be the real time and real cost for a modern high speed rail system?  Ten billion dollars is a drop in the capital cost bucket.

None of the European or Japanese high speed rail systems are able to operate without annual subsidies (another one of those pesky details).  How much of an annual subsidy will the United States system consume?  Think Amtrak on steroids for inefficient operations and costs!

Let’s get stimulated some more!