Considering the construction rebound

I’m feeling pretty upbeat about the U.S. economy these days.

But we’ve heard upbeat before from commentators, right? Like in the first months of 2011, and then again in the first months of 2012.

This year might really be different, however, because it seems like the deep recession messed with some usual economic adjustments for seasonality. In other words, job growth was exaggerated upward during typically slower months at the beginning of the year, which made the economy look stronger than it was, and maybe made it look weaker than it was in typically stronger months.

But the seasonal factors seem like they’re getting closer to historical norms, as noted in this post by Calculated Risk. The Washington Post’s Wonkblog explores the possibility of another spring stall in The April Fool’s Economy, which ultimately waffles on the question.

Regardless of the strength or weakness of the usual economic indicators, consider the long-term trends in the graph below from Calculated Risk.

Note the usual historical relationship between residential spending, private nonresidential spending (hotels, offices, etc.), and public spending (schools, prisons, etc.). For a time after the housing bust, public spending — which often relies on relatively stable tax streams budgeted far in advance — actually outpaced the other forms. Look how far private residential and nonresidential spending have recovered from the bottom, but look how far below they still are from some sort of logical historical norm. These numbers are not adjusted for inflation; if they were adjusted into real dollars, the decline would look even sharper.

As the population grows and some buildings age into obsolescence, we are going to see construction spending increase even if the economy remains generally sluggish. The added economic activity from increases in construction spending is likely to keep the American economy growing for the foreseeable future, even if we see significant hits to GDP from the sequester and from other poor public policy decisions.

Click to enlarge: