Simonson Says: Looking for a Turnaround

Will February mark the low point in the economic cycle? Assuming President Obama signs the tax and spending relief package this month, and Treasury goes ahead with further banking and credit measures announced by Secretary Geithner on February 10, the economy will soon begin getting a strong double dose of stimulants. The fiscal stimulus should start flowing quite promptly. Within weeks, taxpayers will receive reductions in withholding, unemployment checks will be boosted, and individuals unemployed for more than six months will keep receiving checks longer. Meanwhile, consumers are already receiving the equivalent of hefty tax cuts through drops in interest rates and in gasoline, heating and other prices. The combination of these governmental and market changes may end the spending strike that has kept retail sales tumbling for three months. Already, the National Association of Realtors reported that its index of pending home sales-houses under contract but not yet closed-improved in January. That should translate into higher home sales in March, followed by a revival of housing-related purchases. Within a few weeks of enactment of the stimulus bill, the Federal Highway Administration and other agencies will notify state and local governments how much they will be eligible for under various infrastructure stimulus programs. Direct federal spending on construction will also begin to pick up. The rise in stimulus-induced construction will not be enough at first to offset the sharp cutbacks states are undertaking now to balance their budgets during the current fiscal year. But by the third quarter, public construction spending may level off. The stimulus bill will also help some categories of private construction, such as power, perhaps communications, and residential improvements (for energy efficiency). And tax incentives in the bill may help get private development off (or into) the ground in high-unemployment "recovery zones." But much private construction, as well as bond-funded public construction, will depend on the success of the Federal Reserve, Treasury and other financial agencies in restoring the banking and credit systems. The timing for that breakthrough remains uncertain. The media, policy makers from both parties, and economists will be watching closely for signs of a turnaround. You can help identify it. Send examples of either improvement in the demand for construction and availability of credit, or continued contraction, to simonsonk@agc.org.