Potential grim foreboding on unemployment

A Wall Street Journal article this morning makes an important point. As a part of the economic-stimulus enacted earlier this year, highway construction firms received numerous small projects to employ construction workers. In my travels around the country, and here in my hometown of Santa Fe, I have seen numerous projects funded in by the stimulus package. They are recognizable by the signs posted at the beginning of the road projects.

Anyhow, as the funding for those projects winds down, and hence the number of those projects winds down, the construction firms are not receiving new business. In fact, the Congressional Budget Office estimates that the stimulus package sustained 600,000 to 1,600,000 jobs. [Gotta love those government statistics’ very narrow and precise ranges!] Additionally, the stimulus is estimated to have added 1.2-3.2% to Gross Domestic Product growth. The unemployment rate in the construction industry in October of this year stood at a scary 19.1%.

With the home building industry in a massive slump there are no jobs in the pipelines of most construction companies. Clearly this does not bode well for the unemployment rate or GDP.

Where are we at?

Consistently there is evidence that the economy is still in recovery mode. Sans government stimulus, in the form of cash for clunkers, the first time homebuyer credit, construction stimulus, etc. the economy has a hard time growing. What’s more the bulk of the economy is driven by consumer spending. But as long as the unemployment rate remains stubbornly around 10% there will not be much improvement in consumer spending.

Unfortunately President Obama has backed himself into a corner on Afghanistan. His campaign rhetoric repeatedly stated that Afghanistan should have been the focus of the U.S. military all along. His plans for the Afghan war have been leaked this morning and will entail a surge of 30,000 troops. My point is that this costs big, big money. Money that the U.S. economy could use in the form of continued stimulus. Indirectly, the Afghan war will create jobs for the war machine’s suppliers and for soldiers themselves. But unless construction workers join the military then an increased intensity in the Afghan war will not help the economic recovery become more broad-based.

Conclusion: The economy is in a holding pattern. One that it has been in for about 4-5 months. At this point it is unclear which direction it is going to head: back down for a double-dip recession (not unprecedented), or back up. The data to support either of these cases is in wide evidence.

Jason