PCCA Journal|2
nd
Quarter 2013
8
stimulus, let alone a robust multiyear transportation bill, are
highly unlikely. In the near term, federal spending is unlikely
to be the next driver of engineering and construction activity.
No Replay of the Tech Bubble
or Real Estate Boom
In the first half of the 1990s, rapid growth of information
technology, together with a strong stock market, resulted in
a sustained business investment in technology and capital
equipment, which drove U.S. economic expansion. Growth
during the second half of the decade was fueled largely by a
sharp rise in consumer spending and productivity gains from
information technology. Following the brief “tech recession”
of 2001, the residential housing sector, fueled by federal poli-
cies that kept interest rates low and cheap credit available,
drove economic growth.
It has been seven years since residential construction took
a nosedive into an empty swimming pool. In spite of un-
precedented devaluations of residential real estate and years
of historically low mortgage rates, annual housing starts
remain less than 50 percent of their historical norms and
only recently have been trending higher. Furthermore, even
though housing affordability remains near its all-time high,
50 million homeowners remain behind in their mortgages.
That the housing market is beginning to recover is a positive
sign, but any substantial upturn will be a byproduct of falling
unemployment and rising wages.
Record High Consumer Debt
American consumers have shed $1.3 trillion, or 10 percent, of
housing (mortgage) debt since 2008. The federal government,
mortgage bondholders, and U.S. banking industry absorbed
these losses. Unfortunately, U.S. households still owe more
than $11.3 trillion in total debt, an amount that is 50 percent
more than a decade ago. Non-mortgage consumer debt has
recently reached an all-time record level of $2.8 trillion, due
mainly to increases in student and auto loans. At the macro
level, the American consumer is tapped out, if not under
water financially. Unless wages rise and unemployment falls
dramatically, consumer spending will not be a catalyst that
drives the construction industry.
In Defense of the U.S. Economy
While it may be a safe conclusion that none of the above fac-
tors will drive strong growth in the near term, it is too soon
to wave the white flag and surrender U.S. economic domi-
nance to the world’s other economies. For instance, Goldman
Sachs pointed out the following statistics in its recent “2013
Outlook.”
• U.S. economic output is more than 2.0 times that of China,
2.5 times of Japan, and 4.5 times of Germany.
• The U.S. has 5.0 times the arable land of China and 2.0
times that of Brazil. Only Russia has more arable land and
water resources than the U.S.
• American stocks outperformed European, Japanese, and
emerging economy stocks by a wide margin from 2009
through 2012.
• The U.S. leads the world in innovation and performs the
largest amount of research and development (31 percent).
• The U.S. still has a young and growing population of
skilled workers compared to China, Japan, and Russia. By
2035, China will have more people older than 65 than the
United States population—and China has almost no social
welfare structure.
• A Gallup poll of 151 countries reported that among those
people seeking to move, the U.S. is the top destination of
choice.
How will the U.S. economy remain preeminent in the years
ahead, and what will drive economic growth and construc-
tion spending? The answer is both unconventional and
promising.
The Case for an Unconventional Recovery
The U.S. possesses some of world’s largest reserves of oil
and natural gas. This fact has been known for decades. The
challenge always has been how to extract the resources
economically. Fortunately, recent technical advances in
horizontal drilling and recovery methods involving hydraulic
fracturing have made these resources accessible, transform-
ing the global energy landscape and, more importantly, the
U.S. economy. U.S. oil and gas production is booming and
will have a major effect on nearly all sectors of the economy,
particularly engineering and construction. While there is
vocal opposition to hydraulic fracturing due to concern over
potential groundwater contamination as well as air quality
issues associated with drilling near population centers, these
environmental challenges have had little or no effect in slow-
ing the rate of domestic exploration and production.
Traditional Energy Paradigms
The U.S. is both a producer and the world’s largest consumer
of crude oil products. U.S. oil consumption has exceeded
A Case for Optimism
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