Posted by: Michael Mandel on May 23
One of my regular readers, Jack Krupansky, takes issue with my previous item. In a comment, he says that
Sorry, but it’s more than a little misleading for you or anybody to categorically state that “Every dollar going into housing is a dollar that is not going somewhere else, such as tech and telecom spending.” Each of those dollars is not simply going into a hole in the ground, but is spread throughout the entire economy like fertilizer.
Then he goes on to say
I would invite you to do some journalistic research to find out what fraction of each dollar spent on housing does in fact eventually end up as technology or telecom or other business investment, as opposed to each dollar spent at starbucks, at a movie theater or DVD rental, an airline ticket, on a Slurpee, or placed in a bank savings account
Okay, Jack, I’ll take up that challenge. In fact, the numbers show that construction is very low-tech, in terms of the amount of tech stuff that it buys.
Fact #1: In 2003 the entire construction industry only invested $1.2 billion in information-processing equipment, according to the Census Bureau. Total industry output: $954 billion. That's microscopic.
Fact #2: In terms of inputs, construction mainly consumes materials such as wood, plasterboard, fabricated metal parts and the like. Tech inputs, such as telecommunications and computer services, make up only 3.4% of intermediate inputs. The comparable number for retailing is 5.9%, and for motion picture and sound recording industries is 6.1%.
Fact #3. Construction is a relatively labor-intensive industry, but the majority of its workforce are towards the lower-end of the wage scale. That means they are less likely to be big spenders on home computers and broadband.
I don't have a number summing up the whole thing, but there's little doubt that spending on construction is less stimulative for tech and telecom.
Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.