MECHANICAL CONTRACTING BESCHLOSS BEAT
Residential, construction spending remain in depression
BY MORRIS BESCHLOSS CONTRIBUTING WRITER
originally to house the families of returning GIs, to the glistening condominium towers of America’s big cities, the superior residential, commercial and industrial construction to shelter and serve America’s booming population growth made the U.S. economy and its underpinnings the envy of the world. The implosion of this American bedrock
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The one bright light expected to appear in 2011 is the comeback of commercial and industrial activity. Vacancy reductions, as well as capacity utilization, are on the comeback trail.
economy has fallen from grace. Current statistics provide a searing reminder. Although
U.S. construction spending bounced off the bottom in September and October, it is operating at spending levels last seen 20 years ago, when the American population was substantially smaller than today. After reaching a peak of an annualized $1.2 trillion in March 2006, overall construction spending had reached a new low of barely $800 billion annualized in August 2010. Even this relatively subdued number was only made possible by a recent flurry of repair, maintenance and upgrading spending. Abetting the extended length of the residential
subsector’s construction doldrums is the inventory accumulation of unsold homes and condos, remaining at the highest levels since the 2008 financial crash. With foreclosures continuing unabated, in spite of recent improvement, there are no indications that this backlog will be substantially reduced any time soon. The diversion of the world’s finest talent accumulation
of residential construction technicians, professionals and marketers to specific commercial and industrial projects has absorbed some of those previously active in the homebuilding and maintenance arena. All in all, the
has become the most painful and telling sign of the extent to which America’s superpower
he most shining pillar of America’s growth since the end of World War II has been "construction." From the low-cost housing of Levittown, built
demise of America’s housing grandeur has proven disastrous for tens of thousands of specialists who had committed their life’s work to America’s once-leading economic sector. The one bright light expected to appear in 2011 is the
comeback of commercial and industrial activity. Vacancy reductions, as well as capacity utilization, are on the comeback trail. With U.S. banks continuing to hold huge loans collateralized by developers’ massive commitments, the postponement of calling such loans, as long as interest is paid, will have to be confronted eventually.
General Electric — the fading face of American business?
During the roaring 1920s, President Calvin “Silent Cal”
Coolidge was noted for a singular expression, “The business of America is business.” This point of view was later expressed by General Motors' chief executive,
“Engine Charlie” Wilson, who boasted that, “What’s good for GM is good for America.” Although Wilson later reversed this statement to be politically correct, there was no doubt that big business generally felt that it harbored the welfare of America’s exceptionalism as the “keeper of that world-leading responsibility.” This principle, crystallized in the 1970s and grown
continuously, has fostered the emergence of conglomerates, which are an amalgamation of specialty businesses under a single corporate stewardship. The top of that pyramid presides over companies whose synergy makes no sense. The expression “bottom line” came from such businesses, since the ability to generate paper profit became the ultimate objective of such a structure. The best example of this concept today is GE, whose
major profits have consistently been derived from GE Capital, which, ironically, was bailed out by TARP, as well as by the subsequently passed Federal Reserve stimulus. I am an enthusiastic proponent of privately owned
businesses, which hire two-thirds of America’s potential workforce. I find that the ultimate differences, conceptually, between the two approaches, publicly held corporations and privately owned entities, are as follows: 1) “Small” businesses know the sectors in which they
specify, produce, market and maintain expertise, from top to bottom. Mega-corporations are primarily interested in the aforementioned bottom line and in quarterly exposure to its stockholders and equity investors. 2) Small businesses, which span the gamut from “door
front” enterprises to multi-billion dollar mega establishments, focus on business sectors in which they are intimately involved, often through multi-generational exposure. 3) While CEOs of the large corporations can’t possibly
be involved in the disparate interests their divisions and subsidiaries represent, the owner/president of a “small”
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phc february 2011
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