Stimulus worked (and is running out)

I thought I’d flag up this article in the Telegraph from last week.

It’s about the construction industry hitting the buffers because of the poor weather in November and December this year.

It also notes that construction, despite being a very small part of the economy (6%) accounted for a significant proportion of what little growth there has been. Construction growth made up one third of all growth in the economy in Q2 of 2010, and one quarter of all growth in Q3. Not a bad contribution from a small sector.

This shows that the extra money invested in housing as part of the fiscal stimulus worked exactly as it was supposed to. The construction growth of the last year has kept people in jobs (and off benefits) and supported firms that otherwise would have gone under or contracted.

Think how much more anemic the growth in Quarters 2 and 3 would be without the extra housebuilding.

More worryingly for the future, construction is now contracting, jobs are being shed at a rapid rate and in particular “residential construction [is] falling at the fastest rate since April 2009, indicating the knock-on impact of a stagnant housing market.”

And I would add, deep cuts in capital for housing investment and the fiscal stimulus coming to an end.

And remember not only did this irresponsible, deficit creating spending splurge keep people off benefits, in jobs and supported competitiveness and capacity in the economy – it leaves a legacy of tens of thousands new affordable homes across the country that would not otherwise have been built.

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5 Responses to Stimulus worked (and is running out)

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  5. Brian Green says:

    There is little doubt that the stimulus worked in halting the decline in construction activity. Indeed, it appears to have produced a fairly substantial bounce back, although there is some confusion over how much as a result of problems in the data.
    However much this was, for construction it provided greater benefits than simply more work and more jobs. It bought time for firms to readjust their business plans – from expansion to consolidation – in a slightly more sane environment than they might have faced if work had continued to fall at rates few firms had ever experienced.
    Depending on your point of view, one of the most beneficial effects of the stimulus for the industry was that it will almost certainly took some of the pressure off firms to bid suicidally. Suicidal bidding is a nasty effect of recessions within the industry where firms bid below cost to win work and create a “death spiral” in pricing. This in turn pushes good firms to the wall.
    As regards housing, much of the upswing in activity in the second and third quarters of 2010, was probably down to the effect of restocking – a surge in opening up new sites to refill the rapidly emptying production pipeline.
    While not all of this would have been down to the stimulus, the improved level of confidence it assisted in bringing to the market will most likely have helped to bring forward work on new sites that would otherwise have remained dormant for some while longer.
    What bothers me is that when we look at the public sector accounts we see that capital expenditure – major contributor to construction activity – was running at the same level for the first 8 months of the financial year as it was a year earlier. With a £10 billion cut to this budget planned, that suggests a hefty cut in the remaining 4 months.
    The future was always looking tough for construction after the credit crunch. But I think it is fair to say that the stimulus spared it much unnecessary pain.
    I might just add as this site is primarily about housing that, from very rough calculations taking data mainly from the tax and benefit tables, it’s fairly easy to suggest that for every house built the Treasury is better off to the tune of between £20k and £30k – depending on assumptions made – just from reduced benefit payments and increased taxes. This leaves aside the other beneficial multiplier effects.

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