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Will Stock Market Drop
Dim Construction Outlook?

Latest News > Industry News

Will last week's roller coaster ride in financial markets worldwide dim this year's glowing non-residential construction forecast in the U.S.?

No, says Jim Haughey, Reed Construction Data chief economist on Reed’s Building Team Forecast website.

"High price volatility and more decline is likely over the next few weeks as investors rebalance their portfolios and some margin investors are forced to liquidate their holdings," Haughey said. "But the economy will shake this off just as it has previous financial stocks. The 500 point drop in October 1987 had no noticeable impact on GDP for that quarter," he explained.

In fact, the repercussions could be favorable for construction, he stated. "Note that construction will benefit, at least temporarily, from the drop in interest rates that accompanied the drop in stock prices," Haughey said.

Federal Reserve Chairman Ben S. Bernake and central bankers from Europe and Japan said the market oscillations were of less concern than the risk of inflation, signaling that a lowering of interest rates isn't likely any time soon.

"The global economy continues to perform very well, with solid growth and relatively low inflation," said John Lipsky of the International Monetary Fund, reported. Current bank policies, "seem on track," Lipsky added.

Naturally, some economists disagree. They see last week's machinations in financial markets as signs of a growing threat. The market decline means, "we are going to get a recession" in the U.S., says Nouriel Roubini, a professor of economics at New York University and chairman of Roubini Global Economics, "The Fed will have to cut rates sooner or later, but that won’t prevent it," he added.

However Federal Reserve Bank of St. Louis President William Poole flatly disagreed. "We do not see a recession coming. At this point it seems to me there is no, in my judgment, no pressing need for any immediate action."

Neither does Dr. Irwin Kellner, chief economist of Dow Jones MarketWatch. The recent plunge doesn't increase the likelihood of a U.S. recession any more than did previous large declines, he said. The 3.3% decline in the Dow Jones Industrial Average last Tuesday did not even rank among the top 10 single-day percentage losses. "With only one exception, none of the 10 biggest percentage drops in the Dow Jones Industrial Average was immediately followed by a recession," Dr. Kellner added.

As of mid-day, U.S. markets had stabilized themselves. The Dow Jones Industrial Average was off less than one point after skidding 75 points earlier in the day, then rising 50. However, "Probably it's better to save any judgment on this market today until the last half hour," one security firm manager said.