Did Someone Say Recession?

Economists Weigh in as Talk of Recession Grows

Suddenly, the word “recession” is everywhere.

Last week, the Federal Open Market Committee (FOMC), the monetary policymaking arm of the Federal Reserve, decided to hold the Fed’s interest rate at its current 5.25 to 5.5%. A much weaker-than-expected July jobs report followed from the Bureau of Labor Statistics showing that total nonfarm payroll employment went up by only 114,000—well below the average monthly gain of 215,000 over the prior 12 months. Meanwhile, the unemployment rate edged up to 4.3%.

One silver lining from the jobs report was construction employment, which continued its upward trend in July, adding 25,000 jobs.

To help understand what the surge of recession chatter might mean for US nonresidential construction, we asked five economists for their thoughts on the construction economy. Here is what they had to say.

Ken Simonson | Chief Economist, Associated General Contractors of America

“Construction employment growth accelerated in July, with gains among residential, nonresidential, and heavy & civil engineering construction firms. Despite signs that the broader economy is cooling, prospects remain bright for infrastructure, renewable energy, and data centers. Homebuilding should also pick up as mortgage rates and developers’ financing costs moderate.”

Michael Guckes | Chief Economist, ConstructConnect

“Wall Street’s severe response to the recent poor jobs report should be a clear indicator of the high stakes involved in the Fed’s ability to manage the economy. While the Fed should not be influenced by the stock market’s behavior, recent events have made it virtually impossible for them to ignore the powerful influence that they hold over many millions of people’s financial well-being. As a result, the Fed may feel additional, albeit inappropriate, pressure to lower interest rates at their September meeting in hopes of protecting the jobs market. Such action would positively impact nonresidential construction, chiefly by allowing more projects to find a path to financial viability thanks to lower borrowing costs. For those projects that are already viable at today’s elevated rates, any rate cut would simply bolster expected returns on investment.”

Kermit Baker | Chief Economist, American Institute of Architects

“The recent jobs report suggests that the labor market is slowing faster than expected and that the anticipated soft landing may now be at risk. That certainly would reduce demand for new construction activity. Offsetting this - at least in part—is the likely response by the Fed to accelerate their planned easing cycle.”

Alex Carrick | Retired Chief Economist, ConstructConnect

“As much as anything, the slide in stock market valuations is an expression of frustration that the Federal Reserve has been so slow in easing its restrictive interest rate stance. There really should not be talk of a possible recession at this time, but the delay in supplying stimulus through rate cuts does jeopardize the outlook. Home building, with related home purchases, is perhaps the one area of the economy most sensitive to interest rate changes. A recovery in housing starts needs to soon be underway, and that will inevitably have knock-on positive benefits for the whole economy through sales of such durable goods as appliances and furniture. Having said this, though, there’s another factor probably weighing on investors’ minds, and that is uncertainty related to the outcome of November’s Presidential election. There may be a few more months of rocky sailing before the seas calm and all sails can be unfurled once again.”

Sebastien Tillet | Economist, Oxford Economics

“While last week’s FOMC decision and the weaker-than-expected jobs report caused some market stutters and wider concerns about a looming recession, our short-term view on US nonresidential construction remains strong. Construction employment in the July jobs report was amongst the strongest sectors, growing by 25,000, and the lack of a July rate cut re-affirms our current position of a 25bps cut at the next meeting. The last week of market volatility has not fundamentally moved our view but has made a September rate cut more likely.”

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About ConstructConnect

Construction Starts Here™ at ConstructConnect, where our mission is to help the construction industry start every project on a solid foundation. A leading provider of software solutions for the preconstruction industry, ConstructConnect empowers commercial construction firms to streamline their workflows and maximize productivity. ConstructConnect operates as a business unit of Roper Technologies (Nasdaq: ROP), a constituent of the Nasdaq 100, S&P 500, and Fortune 1000.