The American World Is Degrading

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Throughout my journeys throughout the world, I have noted the state of repair of government and private sector buildings / facilities.

Some areas of the world prefer spending little to keep buildings in class I condition and let them generally degrade. At some point, the building reaches the point that a new replacement structure is more cost effective. Seldom is the new structure built in the same location because the old building needs to be used until the new one is available for occupancy.

The old location is seldom re-purposed and becomes unused and derelict. The area surrounding this derelict slowly degrades. New investment generally avoids run down sections of town - or the shabby town in its entirety.

On the other hand, most areas in Europe maintain a much higher standard of maintenance with buildings / structures continuously repurposed. Generally old sections of town look pretty sharp.

Early in my workings overseas, I observed the low maintenance areas were generally in the "third world" - the group of developing nations, especially of Asia and Africa, that did not align themselves with the policies of either the U.S. or the former Soviet Union.

How times have changed. Now areas of the USA have joined the "third world" - and many parts of the "third world" have adopted higher maintenance standards.

There are $43.2 trillion of structures in the USA.

Value of Structures In the USA
Replacement Value
Household structures (B.101)$16.9 trillion
Corporate structures (B.103)$8.8 trillion
Non-corporate structures (B.104)$5.7 trillion
Government Structures (B.1)$11.8 trillion
total$43.2 trillion

Source: Federal Reserve Z.1 "Financial Accounts of the United States"

If population growth is 0.7% it is logical that $0.3 trillion ($43.2 trillion times 0.7%) needs to be spent on new structures just for population growth. According to the the most recent GDP release - $0.745 trillion (private investment in structures is $475 billion - fed investment in structures is $270 billion = $745 billion) is being spent annually on structures which is 1.7% of the total value of structures. But if you subtract the $0.3 trillion for population growth. the remaining $0.445 trillion is approximately 1.0% of the total value of structures currently existing in the USA.

There is no breakdown to know what percentage of GDP investment in structures is for renovation of existing structures, and what percentage is for new structures.

But even if we consider all the spending is for new structures, for this rate of 1.0% spending on new structures to be adequate - the average lifespan of all structures needs to be 100 years. In my experience, most structures have a limited lifespan because modifications needed to keep the structure modern and cost effective at some point become more costly than building a new structure.

Lifespan is affected by maintenance. There are rules of thumb which says annual maintenance costs are between 1% and 3% of replacement value.

Any way you look at it - there is a deterioration continuing in the USA.

Other Economic News this Week:

The Econintersect Economic Index for September 2017 dropped below the range seen for the previous 5 months - and is now in a range associated with below normal growth. Six-month employment growth forecast is indicating improvement.

Bankruptcies this Week from bankruptcydata.com: Appvion (f/k/a Appleton Papers), COPSync, Privately-held GST AutoLeather

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Economy , Real Estate

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