The torrent of economic good news gushing from economists and think tanks is almost overwhelming.

Hell's teeth it is a boost to confidence. But does this mean that the recovery is in sight for construction?

David Miles, the new member of the Bank of England's Monetary Policy Committee recently told the Western Mail that the worst was over.

The CBI makes the same claim, and the Ernst & Young Item Club sees confidence returning and heralding a recovery on its way next spring.

And the economics consultancy CEBR has pumped out a range of views on the economy that are based on seeing light at the end of the recessionary tunnel.

Three of the latest releases from its newsroom are entitled "Easter resurrection for housing", "Credit where credit's due" and "The fog of uncertainty lifts".

These respectively suggest that: housing transactions are set to rise and price falls moderate; VAT reductions had a positive impact; and that there is more certainty over the future path of the economy.

The debate with regard to the wider economy has now shifted to some extent from how deep we will go to the shape of the recovery. Will it be V-shaped, U-shaped, or W-shaped?

V-shaped is the one the Bank of England pointed to in its most recent Inflation Report, with growth bouncing after savage destocking.

U-shaped is probably the more popular view, suggesting that the grinding effects of unemployment and other knock-on effects of the recession will take their toll over a longer period before the spinning activity generating recovery gains sufficient traction to reverse the downturn trend in GDP.

W-shaped, the cynics' favourite, suggesting that first phase of recovery will be "illusory" because when the stimulus effects are removed and action is taken to reduce public expenditure the economy will take a further dip. The Item Club certainly sees risks of this if the policy reversal is timed prematurely.

As far as construction is concerned these shapes are interesting, but pretty much irrelevant as a recession for construction is almost inevitably going to be a variation on U-shaped or a very extended W-shaped.

The only construction "recession" I can see over the past 50 years that was V-shaped was the technical recession caused by the great freeze of 1962/63.

Clearly the wider economy as measured by GDP has a major impact on construction output, but the link is neither linear nor direct. The reason is that construction is a series of mini-industries with growth cycles that are out of phase.

When you aggregate the various cycles of construction together the effect is to elongate the overall response rate to outside signals. For instance housing projects on average will respond quicker than commercial projects. So while housing is moving up, commercial may well still be moving down before rising later.

The pattern is further muddled by the heavy influence of public spending, which accounts for about a third of all work. This can operate counter-cyclical to the private sector, dulling the up and down movement and reshaping the V towards a U.

And it is this spending that currently poses the most concerns regarding the shape of the construction recovery.

There is a real risk that public spending on construction will take an L-shaped path in the near future as the Treasury seeks to balance its books. That is to say, a sudden drop and no increase for some while.

We may see when we read the detail of the Chancellor Alistair Darling's budget which way the wind is blowing and how soon the cushion of public spending will be removed from the construction sector.

It may be a hard fact to swallow, but even if the rest of the economy perks up construction could be nursing a hangover for some time yet.

Topics