Recent articles by AGC and Reuters note a drop in construction spending in January to the lowest point in nearly seven years. Our problems continue to be caused by banks refusing to make commercial loans and by money drying up for state and locally funded public works projects, not to mention at least a temporary hiccup in federal spending.
Banks, even though many of them are awash in cash and treasury notes, simply will not take risks on commercial loans in this economy. They are refusing to relent until things improve, which ironically they can’t until banks start lending money. The lack of funds is not only affecting construction directly, but it also impedes the start-up and expansion of private businesses, which would, in turn, be likely customers for underemployed contractors. As an example, my brother in law has a company that depends on setting up franchised retail stores. He says he has many new potential businesspeople ready to go, but they can’t get financing to start up their new businesses. A friend, who was until recently a successful commercial mortgage broker, says she simply can’t place a commercial real estate loan with a willing lender, no matter how solid the deal is. These bankers are all waiting with bated breath for the soon-to-come commercial real estate crash, which they seem to be doing everything in their power to precipitate.
Non-federal public works projects are also running out of available funds. Most of them, even local ones, depend on at least partial funding from their respective states. State governments, almost without exception, have less money to work with than they expected due to the poor economy. Thus, even cities and school districts with their portion of the funding can’t get matching money from their cash-strapped states.
Federal spending is still going at a brisk pace, or at least it was until this week, when a Senate filibuster by Kentucky’s Jim Bunning brought the extension of transportation spending to a halt. The Senate’s newly updated pay-as-you-go legislation mandates spending cuts somewhere else to fund new transportation spending and extension of unemployment benefits, so Bunning is calling the chamber on this by demanding to see the matching spending cut legislation. (see LA Times article for more) . In the meantime, contractors performing federal transportation work are near apoplectic about the delay.
On the question of whether we’ve arrived at a “new normal,” Forbes responded with, http://www.ocmetro.com/t-forbes_balboa_bay_03012010.aspx
I’ll close with one last happy thought. Steve Forbes yesterday, while addressing a group of local business people, was asked if this current economic state was the “new normal.” His reply was, “It’s not the new normal. It’s going back to normal. What’s happened was abnormal.” In other words, there will not be a return to the economic conditions of the mid 2000s. They were the aberration.
David Prizio has over 35 years experience in the fields of general contracting, concrete subcontracting, and civil engineering. He functioned in the capacity of carpenter at Prizio & Prizio while attending college. After graduating from Cal Poly, Pomona in 1975, David Prizio began working as a project manager at the firm. He was responsible for design coordination, cost estimation, construction coordination and administration of commercial general contracting projects. He consulted with clients regarding design, marketing, and financing of building and construction projects.