Recession or no recession? Economists sure disagree

Put two economists in the same room and you're sure to get at least three different opinions, Portland Cement Association Chief Economist Ed Sullivan said Wednesday in Las Vegas.

And to support his argument, Sullivan offered a glum assessment of the economy that contrasted with another more optimistic viewpoint.

The Bush administration's economic stimulus package will help the economy, but it won't keep the nation out of recession, Sullivan said.

"The economy is already in a recession and it may not be mild," Sullivan said at ConExpo-ConAgg, the world's largest construction industry trade show with 134,000 registered attendees at Las Vegas Convention Center. "The question is how deep will the entrenchment go and how long will it last."

It's not just the subprime mortgage crisis that crushed the economy, he said. It's tighter requirements for consumer credit and auto loans and increased risk factors associated with commercial lending. It's rising oil prices and inflation. Also, downward pressure on interest rates doesn't help if someone has no liquidity and can't qualify for a loan, Sullivan said.

Consumer spending accounts for two out of every three dollars in gross domestic product, so what happens when the housing market goes down, businesses start shedding jobs and the government loses tax revenue, Sullivan asked.

Twenty-five states, including Nevada, face budget shortfalls for 2009 and the numbers will worsen as the year goes by, he said.

Sullivan's view contrasted with that of Ken Simonson, chief economist of Associated General Contractors.

"I don't think we're in a recession or going into recession, but it's a close call," the AGC economist said. "We're at the bottom. I think we'll get back to real GDP of 2 (percent) to 3 percent."

Nonresidential construction spending grew 15 percent in 2007 to $630 billion, with huge gains in power, energy, hospital, communication and higher education segments, he said.

More than $50 billion was spent on power projects, up 27 percent from the previous year, and he expects 15 percent to 25 percent growth in 2008. He sees weaker growth in lodging, office, commercial, K-12 education and highway construction.

Simonson said he doesn't want to downplay the dismal housing situation and credit market, though the Federal Reserve took action this week to make $200 billion available to banks and investment firms with high-risk mortgages as collateral.

"It seems like I'm walking through the desert with this mirage of a housing turnaround being 12 months out. Every time I look again, it's 12 months out," Simonson said.

Sullivan said the stimulus package may be overstated. Consumers may not use the extra money to purchase goods, but to pay down credit cards from past spending. The same goes for businesses.

"In these difficult times, the best plan is to be as conservative as possible and be surprised in the upside," he said.

The producer price index of construction materials and components was stable until 2004, when it jumped 9.1 percent, Simonson said. The cumulative change since 2004 is 30 percent, double the increase in the consumer price index, the standard inflationary measure. The drivers were steel, gypsum, concrete, copper and diesel fuel, which is up 186 percent from 2003, he said.

The outlook is for material costs to increase 6 percent to 8 percent more in 2008. Construction remains dependent on specific materials, Simonson said. Highway projects, which use oil-based products such as asphalt, are going to see higher increases than commercial construction, which has benefited from a drop in gypsum prices due to a slowdown in residential building.

Contact reporter Hubble Smith at hsmith@reviewjournal.com or (702) 383-0491.