Commercial Construction & Renovation

JAN-FEB 2014

Commercial Construction & Renovation helps our subscribers design, build and maintain better commercial facilities by delivering content to meet the information needs of today's high-level executives.

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RCA's mission is to promote professionalism and integrity in retail construction through industry leadership in education, information exchange, and jobsite safety. President's Message ................... pg 3 New Advisory Board Member ...... pg 3 Full Member Directory ................. pg 4 Member Directory Icons .............. pg 5 Past Presidents – Where are They Now? .................. pg 6-7 RCA Sustaining Sponsors ............ pg 8 INSIDE THIS ISSUE: Let There be Light . . . at the End of the Tunnel By Anirban Basu, Sage Policy Group, Inc. (Continued on page 2 ) The U.S. economy has been stuck at 2 percent growth for several years and throughout much of 2013. Imagine a sports car with incredible get up and go, but one that has to constantly negotiate a series of speed bumps that permit it to only travel between 30 and 40 miles per hour. To complete the analogy, that translates into sub-par economic growth and an unemployment rate still stuck at 7 percent after more than four years of economic recovery. It also translates into a nonresidential construction sector that remains immune to forceful and broad-based recovery. As of November 2013, the value of nonresidential construction put-in-place remained 19 percent below the October 2008 high. However, the outlook for 2014 is as positive as it has been for any year since the onset of the fnancial crisis. There are a number of relevant factors at play. The world economy is now strengthening, with accelerating growth apparent in China, parts of Europe, the U.S., and in a host of emerging nations. Accordingly, the International Monetary Fund projects that the global economy will expand 3.6 percent in 2014 after expanding closer to 3 percent in 2013. There are other tailwinds that more specifcally impact the U.S. economy. The nation now enjoys greater certainty regarding its federal budgetary and Federal Reserve monetary policies. Seemingly against all odds, the federal government recently passed a budget that guides spending into 2015. On December 18 of last year, the Federal Reserve announced that it would begin to taper its bond purchase program beginning in January. Rather than purchasing $85 billion each month in assets, the Federal Reserve will taper its purchases to $75 billion per month. Specifcally, the Federal Open Market Committee will reduce its purchases of Treasuries and mortgage-backed securities to $40 billion and $35 billion per month. Equity investors cheered the policy announcement for at least three reasons. First, the Federal Reserve introduced language suggesting that short-term rates will remain low for many quarters to come. The announcement also reduces the level of policy uncertainty, and markets don't like uncertainty. Finally, the decision to taper implies that the Federal Reserve's forecast for U.S. economic activity has improved since its September 2013 meeting. There's more at work than policy shifts. Gas prices have fallen, helping to increase consumer disposable spending power. Corporate performance remains solid. A majority of large U.S. corporations beat their earnings estimates during last year's third quarter. However, a materially smaller share beat their revenue estimates, implying that companies continue to aggressively manage costs to boost bottom line performance. With economic growth now accelerating, corporate America may have an opportunity to rapidly expand both their respective bottom and top lines. The stock market has simply boomed as a result of the confuence of many factors, with the S&P; 500 surging nearly 30 percent in 2013. While 2014 is unlikely to generate anything close to that return, the stock market's performance has added both capital and confdence to the U.S. economy, which in turn creates a better environment for both the broader economy and the construction industry. The most recently updated data indicate that the nonresidential construction sector of the U.S. economy is set to expand more forcefully this year. Nonresidential construction spending rose 0.6 percent in November. Private nonresidential construction spending expanded 2.7 percent for the month, though that gain was partially offset by a 1.7 percent decline in public nonresidential construction. The expansion in private construction activity is attributable to a number of factors, including consumer spending. After a brief third quarter lull, consumer spending began to re-emerge during the late stages of 2013. Retail sales registered their largest monthly gain since September 2012 in November. Core sales expanded only 1.4 percent on an annualized basis during the third quarter of 2013, but are on pace to expand 3.5 percent during the fourth. Businesses are also spending more, including on travel. Among the 16 segments that comprise the nonresidential construction industry in America, the largest annual construction spending gain was registered in lodging, with spending up 31.2 percent on a year-over-year basis in November 2013. The commercial construction segment has also performed well, as has transportation and manufacturing. We expect that publicly-fnanced segments will continue to be hamstrung by reluctant state and local government budget offcials. State governments continue to deal with (among other things) long-term pension and healthcare cost issues. Moreover, with one-third of their revenues coming from the federal N E W S L E T T E R winter eDitiOn • 2014 The world economy is now strengthening, with accelerating growth apparent in China, parts of Europe, the U.S., and in a host of emerging nations. Accordingly, the International Monetary Fund projects that the global economy will expand 3.6 percent in 2014 after expanding closer to 3 percent in 2013. Anirban Basu CCR_R1-R8.indd 1 2/7/14 1:01 PM

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