Skyscrapers and the Business Cycle

The Lehmann Letter (SM)

Have you noticed how skyscraper construction reflects the business cycle? Exuberant upswings foster monumental building. Recession and depression do the opposite. It isn’t just the amount of construction; it’s also the height.

Think of the Chrysler building and the Empire State building in New York: Both symbols of the roaring 20s. The Empire State building was a white elephant during the Great Depression, but filled with tenants after World War II. Then a new wave of building began, capped by the World Trade Center in New York and the Sears Tower in Chicago. High inflation and sharp recessions stymied the reach for evermore height in the 1970s and 1980s. Then the dot-com boom inspired a new building craze that transferred overseas. Developing nations in Southeast Asia and the Middle East began to set records for great height.

So it was a bit unnerving to see the following article by Landon Thomas, Jr. in yesterday’s New York Times:

“Istanbul Skyline Reflects Cheap Dollars Now Growing Scarce”

The article blames the prospect of rising interest rates and falling local currencies for a slowdown in skyscraper construction:

“….Like a vast majority of new buildings that have blanketed the Istanbul hills in recent years, the Sapphire — at 856 feet it is the tallest in Turkey and among the loftiest in Europe — was built on the back of cheap loans, in dollars, that have flooded Turkey and other fast-growing markets like Brazil, India and South Korea. The money began to flow when the Federal Reserve and other major central banks cut interest rates to the bone in 2009 and cranked up the printing presses in a bid to spur recovery in the United States and other advanced industrial nations.

“But now, with expectations mounting that the Federal Reserve, led by its departing chairman Ben S. Bernanke, may soon begin to tighten its monetary spigot, Istanbul’s skyline could well be a harbinger of an emerging-market bust brought on by unpaid loans, weakening currencies, and, eventually, the possible failure of developers and banks. …

“….But when local currencies start to weaken, in line with diminished economic prospects, then the effect is twofold: paying off dollar loans becomes more costly for the borrower, and the lender becomes increasingly skittish about his exposure to a fragile currency and may move to reduce or even slash credit lines….

“…These loans — many of them relatively short term — also highlight a recurring characteristic of the emerging-market growth boom: the powerful nexus between ambitious governments eager to promote high-profile investments and politically connected business groups ready to take on such projects.”

Could it be that the pullback entails more than interest rates and currency rates? Is this construction slowdown a symptom of a broader problem: The waning of a boom that recently lifted developing nations? We’ll see as events unfold.

(To be fully informed visit

© 2013 Michael B. Lehmann