Did China Really Win, Or Did Everyone Lose?

Of all the economic accounts where last year’s big tropical storms would have had the greatest impact, any substantial boost in construction spending made the most sense. What is destroyed is most often quickly rebuilt, particularly in the public arena. One of the core functions of local government is infrastructure, and no local politician can survive long in office if constituents are reminded daily of massive lingering deficiencies.

Public construction, however, has been stuck in a decade-long lull. The reason for the abatement is the housing bubble, a period when especially Southern and Western municipalities saw their real estate levies surge. Economists might disagree, but it’s not really austerity if you are made to live within your actual, non-inflated tax base.

Public construction spending rose in August 2017 along with Harvey’s initial arrival and landfall, and then gained more in September and October. There was another rise in January, though the reason for it is unclear. The latest figures for February 2018 show a sharp decline from January. It may just be that January and February average out at a lower level than November and December.

That would be consistent with the fading effects from Harvey and Irma. Analysis on this account will be further distorted by tax law changes, however, which in Q4 2017 boosted state and local receipts derived from individual income taxes by 14% year-over-year.

It’s possible that municipal governments could increase their project budgets even in response to a temporary increase in tax receipts. There is always a desire to do more and any windfall could provide the opportunity to boost infrastructure. Taken together with hurricane effects, there is no clear direction indicated at this point.

That’s not as much of a problem on the other side, private construction. Residential project spending continues to grow, but still on a weaker trajectory going back to last year. From other real estate related construction estimates, such as permits and starts, we know that it is largely the multi-family segment that is holding back overall residential spending. It is a particularly negative reflection on the labor market and labor incomes.