Now that USA’s leadership for the next four years has been determined, construction interests are challenging Congress and the Obama administration to get to work on addressing the 'fiscal cliff'.

A recent study by the Portland Cement Association (PCA) reported that given the fragile state of the US economy, inaction could prompt a recession and have a negative impact on the construction industry.

The 'fiscal cliff' came about from dual economic objectives reflecting the need to inject fiscal stimulus into an inert economy and the need to deal with burgeoning federal debt. Packaged together as the Budget Control Act of 2011, tax increases of US$400bn coupled with US$200bn in federal spending cuts are scheduled to go into effect on 1 January 2013.

“Rational, quick action by Congress and the administration would minimise the short-term costs of narrowing the deficit and enact a somewhat more aggressive longer-term combination of tax and fiscal spending policies,” Ed Sullivan, PCA chief economist said. “Under this scenario, the near-term disruptive economic aspects associated with the fiscal cliff are significantly reduced and real economic growth would be only marginally impacted.”

However, the PCA forecasts that a polarised Congress that might not reach an agreement until March 2013, after the tax and spending cuts go into effect. This would slow economic growth and job creation. Structural impediments to a construction recovery would worsen as job losses materialise. A third possible scenario is a Congressional impasse, where Congress takes no action and could cause a severe recession and reverse recent gains in construction activity.

The PCA considers the ‘rational’ Congress scenario as the most likely outcome in Washington. “However, although a Congressional impasse is the least likely, the actual outcome could reflect a blending of two scenarios,” said Ed Sullivan.