National Construction Leader Joseph Natarelli and Chief Construction Economist Anirban Basu wrote about analyzing economic cycles for their latest article in Construction Accounting and Taxation
Construction Accounting and Taxation
By Joseph Natarelli, National Construction Industry Group Leader & Anirban Basu, Chief Construction Economist
Excerpt:
Some industries are prone to experiencing lulls in activity before the onset of an economywide recession. Others are associated with delayed effects, with activity continuing apace even as economywide employment and output begin to turn south. Industries that tend to hint at upcoming downturns include manufacturing (inventory cycle), real estate (excesses), and financial markets (irrational exuberance).
Construction is among those industries that tend to lag behind broader economic cycles. The exception is when it is the cause of the cycle. Such was the case approaching the 2007–2009 global financial crisis as a boom in home prices and housing construction was partly driven by faulty lending. This resulted in a collapse in owner-occupied housing, massive losses in the banking system, and eventually the Great Recession. One can observe weakness in the housing market data as early as 2006, which neatly preceded the onset of the Great Recession.
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