Propelled by national defense spending, Hurricane Katrina relief, and durable goods consumption, real gross domestic product (GDP) grew at an annualized rate of 4.8 percent in the first quarter 2006 compared with just 0.9 percent annualized growth in the fourth quarter of 2005.
The stabilization of interest rates should help business investment in construction as firms continue to expand capacity, stated Zigmund. The expansionary fiscal effects of government spending are unmistakable in this growth phase. As the Katrina rebuilding wraps up and soldiers are redeployed to the Middle East, spending should come back into line. This will have a short run contractionary impact on the economy, but in the long run should serve to slow the growth rate of federal deficits.
Based on industry statistics, Zigmund explained that nonresidential investment in construction was strong as expected in the first quarter and strong construction figures are expected to drive growth in the second quarter. Growth in nonresidential construction is expected to continue at an annualized rate of close to 9 percent during the second quarter as well.
Publication date: 07/03/2006