Monday, July 9, 2012

Has Housing Bottomed? ... Maybe So

We've been struggling with housing starts for a long time now. Even though it's hard to believe, however, it appears that maybe things are starting to look better, if not bright.

If so, that would definitely be a positive sign for the U.S. economy in general and construction specifically.

Number of the Week: Has Housing Bottomed? provides some basis for optimism:

"10: The number of consecutive months that the construction sector has shown year-over-year job growth.

The signs of a bottom in the housing market are piling up, and after Friday’s employment report we can add construction jobs to the pile.

The most widely reported construction numbers weren’t particularly encouraging. Although there was a small 2,000 monthly gain in June, that followed four months of moderate declines. That doesn’t exactly scream recovery. To see the broader trend we need to look a little deeper.

The monthly numbers include a seasonal adjustment factor included by the Labor Department in an effort to smooth out the figures. Usually that’s a big help to gauge what’s going on, since weather plays an outsized role in construction. During the spring and the summer hiring easily outpaces the colder months. But this year, the effort to smooth out the figures was complicated. Because the winter was so mild, some hiring that would have occurred later in the year was pulled earlier. So even though there were declines in the spring, we saw increases in December and January.

To get a look at the broader trend we can look at the monthly change from a year earlier. There we see that surge in December and January, but we also see that there has been consistent growth for 10 months — the longest sustained increase since 2006.

That’s not just good news for the construction industry, but for the economy as a whole. After nearly five years of subtracting from the labor market and the economy, the housing sector might be ready to contribute again. It’s unlikely that we’ll see growth similar to the boom years, but we don’t need a bubble to get a substantial boost.

A growing housing sector doesn’t just create jobs in construction. It means jobs for support industries such as manufacturers and equipment transporters, as well as service jobs like lunch trucks that feed the construction crews.

Economist James Hamilton notes that even a modest recovery in housing could have a big impact on the economy. If the sector got back to just 4% of gross domestic product — “a share exceeded 87% of the time prior to 2005,” Hamilton notes — it could boost GDP by 2%."

Summing Up

Although no cause for celebration, the year-on-year increase in non-seasonally adjusted housing starts has occurred for ten consecutive months now.

Perhaps we'll keep this winning streak going and climb our way out of the hole we've dug for ourselves the past several years.

To get out of any hole, we first have to stop digging.

And so it seems that we have. We'll worry about gaining strength later. For now, let's just keep our fingers crossed that we've reached the bottom. All by itself, that would be a good thing indeed.

We haven't had much to cheer about lately, so let's enjoy this bit of good news on the construction front.

Thanks. Bob.

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