ConstructConnect’s Chief Economist Alex Carrick recently sat down with Carolina Borges Cavalcante of Oldcastle Building Solutions to discuss the economy and the outlook for the construction industry. In Part 1 of the interview, Alex and Carolina discuss the U.S. economy.
Highlights from Part 1:
- The U.S. economy is doing extremely well.
- Weekly initial jobless claims has remained under 300,000 for two years.
- The NASDAQ Composite Index has had a 16% compound rate of growth per year since February 2009.
- The Dow Jones Industrial and Standard & Poor’s 500 have had about 11-12% compound rate of growth per year.
- Talk in Washington is focused on aligning fiscal and monetary policies for tax cuts, infrastructure spending and deregulation.
- Fracking and the shale rock sector have led to a boom in the amount of oil and gas being produced in the U.S., lessening our dependence on foreign oil.
- Lots of potential for growth as interest rates increase and global trade and commodity prices start to pick up.
Full Transcript of Part 1:
Carolina: Alex, first of all, thank you so much for coming here and spending the time with us. It’s really an honor to interview you with our partnership with ConstructConnect. We’ve been working together for several years and it’s good to have you here to answer some of my questions.
For those of you that don’t know Alex, he is the Chief Economist covering North America for ConstructConnect, as well as CanaData, and he has been providing our industry with economic and forecast data for over 30 years. During our conversation today, we’ll talk about the US economy, what we can expect for construction, and also touch upon what is happening in Canada.
So, let’s get to it. Starting with the U.S. economy, one of the things we’ve seen is that we’re in an expansion period of over 90 months. It’s one of the largest expansions that the U.S. has experienced in its history. Do we need to start preparing ourselves for a recession or are we just in a new era of growth where we’re going to experience slow, steady growth?
Alex: Well first of all, Carolina, if I might, thank you very much for inviting me. This is a pleasure and I’m sure we’re going to have fun today. As for the US economy, I have been saying for a number of years that it is much stronger than people have been thinking.
One of the numbers that I look at, that I really like, is the initial jobless claims that comes out on Thursday morning. That figure has been less than 300,000 for almost exactly two years now. That’s an exceptionally strong number.
Of course, recently the stock markets have just taken off and I don’t think that people really know what’s happened there. The trough figure for the Dow Jones Industrial and NASDAQ and Standard and Poor’s occurred in February 2009. All three of them had the same trough period.
Since that time, NASDAQ is up 300%, the Dow Jones Industrial and S&P 500 are up about 200%. The compound rate of growth for those indices is 16% per year for NASDAQ, 11-12% for S&P 500 and DJI and that’s incredible. When you think what interest rates are and you can earn something like 16%, that’s just phenomenal, phenomenal growth.
So, the economy has been doing very well. It’s as if nobody recognized it. What has happened with this most recent election, I think was, it got people’s attention and made them start to think differently, rather than just focusing on the recession.
The great recession, which is kind of like in Jurassic Park when the T-Rex is chasing you down the road and you keep looking in the rearview mirror. The last election kind of changed it. The reason was because suddenly the talk, at least, is about fiscal policy being in sync with monetary policy. Talk about tax cuts and infrastructure spending and deregulation. Suddenly it looks like there’s going to be support on the fiscal side to go along with the monetary support and that has changed things.
Carolina: If we look at some of what other economists are saying, they are seeing a dip in the recession. That a recession is coming. But you guys don’t see that. The economy is strong and should continue that way for the next five years.
Alex: Well no, now the thing that could happen is you could get sidetracked because this administration in Washington, let’s be honest, they have pretty apparent capacity to get sidetracked on other issues. If you think about some of the things about the U.S. economy that are still really positive, for example, the U.S. was inhibited in the past by a dependence on foreign energy, foreign oil.
That’s not the case anymore because the whole shale rock sector and fracking has caused an absolute boom in the amount of gas that can be produced and the amount of oil that can be produced. In fact, the US is exporting liquefied natural gas. That will contribute to the economy as well.
Carolina: It’s a whole different position from where we were years ago.
Alex: Yeah, it’s a completely different ball game. In terms of the stock market, if you’re thinking about whether stock market prices can keep increasing, just consider the fact that the big gains have occurred with virtually no help from the raw materials side.
If global trade picks up and commodity prices start to pick up and some of these resource sector firms start to do better and start making higher profits, that’s where you can get support for the stock market prices. And the same with the banking sector, once interest rates start to move higher.
And a couple years ago there was concern that that would be dreadful for the economy. All that’s being factored in now. Nobody seems to be in any great dread of the interest rate increases that are coming. That will help them, the financial firms and the banking firms.
There’s reasons that things could come to a crashing halt because this has happened in the past. But really, on balance, I think there’s still a lot of potential for growth. And the rest of the world seems to be growing now, too.
Carolina: Great. Thank you very much. Alex, it’s an honor talking to you and I really, really appreciate your time. I hope all of you have enjoyed it as well.