Idea of the Day: Construction Employment Saved the Economy But That’s Now Ending

StukiMoi

3 years ago

“When you see a big decline in building permits, you know some number of months later, the number of units under construction will decline.”

And when you see a big decline in building permits; while at the same time outright homelessness is rising, and the biggest cost item for a company with 20 hard science Stanford PH.Ds in a garage building Mars rockets, is rent for the effin garage; you know you live not only in the #dumbage, but in fact in the dumbest of all possible #dumbages. As well as that there is )1 no hope, and 2) thank goodness those less flat out stupid people over in better governed, freer and more literate TalibanStan, are outbreeding “us” #dumbagers 4 to 1.

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KidHorn

3 years ago

Who’s planning commercial office space construction now? Doctors offices near a hospital are the only thing I think might be built.

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Lisa_Hooker

3 years ago

Reply to KidHorn

Yes.

But doctors are not building offices much.

And they are not forming small professional groups of 2 or 3 doctors much.

Doctors are signing contracts with large corporate conglomerations (no better word) that manage all the absolutely necessary insurance paperwork (private and Government).

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Mbartv1234

3 years ago

The lagged effect of residential construction drops on unemployment is a great insight. Commodities and manufacturing have rolled over. The problem now is that the remaining inflation the fed is trying to fight, services inflation, is being driven by structural factors (boomer retirements, Covid related reduction in labor force) which fed policy cannot effect. The shower stays colder longer.

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8dots

3 years ago

RE investments are down : mini 1BDRs, mini 2BRs, mini Townhouses for rent… infested the flyover areas.

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Billy

3 years ago

You guys gotta check this video out on Rumble with Wealthion

https://rumble.com/v2c56vv-stocks-to-drop-in-half-once-hard-landing-arrives-mike-mish-shedlock.html

Adam Taggart’s guest is just amazing

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Mish

3 years ago

Reply to Billy

Thanks Billy!!!

Much appreciated

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gstegen

3 years ago

Also, I just looked at todays January JOLTS report. Construction has by far the largest percentage drop in job openings both month/month and year over year.

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Tony Bennett

3 years ago

Reply to gstegen

JOLTS wins the award for worse response rate.

31.1% (Dec)

Chart 2

https://www.bls.gov/osmr/response-rates/home.htm

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KidHorn

3 years ago

Reply to Tony Bennett

It’s 70% made up.

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MarkraD

3 years ago

This is a topic you cannot get the full picture of by parsing historical economics data alone.

Construction accounts for just under 5% of the labor force.

Look at a 40 year chart of mortgage rates and permits side by side, you’ll notice this time that mortgage rates (Fed policy) is the likely and *intended* cause of the drop, however, there’s something else.

Labor, a friend owns a mid-sized residential construction company, most of his work is financed, and he currently has upwards of a years work backlogged, I asked him if his pipeline has slowed since the rate hikes, he says “no”.

The reason for his backlog, he can’t get help, and, these jobs are already retained with a payment.

They usually pull permits a few months ahead, but only once he knows the job is going to start (permits expire if too much time passes)

There’s absolutely no debate that Basmajian is correct in his observations, but that the historic data he’s using does not factor current variables.

Where the Fed is directly responsible for this “pending” slowdown, can anyone remember the last time the Fed sought to reduce employment?

I certainly can’t.

I’m just relieved to see we’re out of “ZIRP” and that the market’s not climbing parabolically now, I’m also a little concerned that maybe the Fed overshot – We’ll soon know as commodity & energy prices level.

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Mish

3 years ago

Reply to MarkraD

Not thinking correctly

Durable goods is a small piece of GDP, so is residential construction

But Medicare, Medicaid, military spending, state and local govt spending are all stable

It is the smaller cyclical components of GDP that determine recession.

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MarkraD

3 years ago

Reply to Mish

My anecdotal example, the friend who has a construction business, was the rationale – we’re well past a year since the market’s high/first rate hikes and still over 10 mil on Jolts.

His backlog situation, I think, isn’t just his alone, his only problem is finding help, not customers, despite the rate hikes.

.

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Salmo Trutta

3 years ago

– Recent Growth in Broad CFS
Divisia Monetary Data 3

DivisiaReports.xlsb (centerforfinancialstability.org)

The Treasury-Fed Accord : A New Narrative Account

The Treasury-Fed Accord : A New Narrative Account – Page 33 | Toc | FRASER | St. Louis Fed (stlouisfed.org)

Link: Daniel L. Thornton, Vice President and Economic Adviser:
Research Division, Federal Reserve Bank of St. Louis, Working Paper Series
“Monetary Policy: Why Money Matters and Interest Rates Don’t”

2012-020.pdf

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HippyDippy

3 years ago

Loved all the different perspectives. Can’t believe supply issues didn’t even cross my mind until the last tweet! And, one of my leading indicators of a busting up of an insane bull market is that phrase “this time it’s different”. Bears are prone to go on a rampage when that phrase gets popular. Never heard the fool in the shower bit before. Interesting read.

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Tony Bennett

3 years ago

Lumber might be giving a clue …

https://finviz.com/futures_charts.ashx?t=LB&p=d1

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HippyDippy

3 years ago

Reply to Tony Bennett

The biggest sector of my area are tree farms. One of my gripes about wood today is that it’s grown too fast. This means the rings are farther apart and the wood integrity is shot out. Old lumber is a hot commodity as the older the wood, the higher the quality. Not really related, but it just irks me as it also lowers the lifespan of whatever it’s used in.

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Tony Bennett

3 years ago

Reply to HippyDippy

Yes.

Not to mention that todays 2×4 is ~ 1 1/2 x 3 1/2

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MarkraD

3 years ago

Reply to Tony Bennett

Tony, the last time rough cut lumber was used was 100 years ago.

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HippyDippy

3 years ago

Reply to Tony Bennett

I’ve worked with some of the rough cut woods, usually from old houses, which means good wood, and it’s a completely different wood to work with. Not because of the cut, but the quality. Some of the rough cuts add a lot of rustic appeal as well. Haven’t worked with any for about 40 years, and it was old then, and I had no clue that those days were done. At least for the civilization cycle we’re in now. So much has changed in my nearly 63 years on this speck of universe dust that I sometimes feel I have more in common with people of the 1800s than those today. Not that I’d last long in the 1800s! Tough people back then.

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KidHorn

3 years ago

Reply to Tony Bennett

2x4s have been that size for decades. And Southern Yellow pine is by far the most used tree for lumber because it grows really fast. That hasn’t changed in decades either.

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MarkraD

3 years ago

Reply to HippyDippy

This is also why food now has less nutrients than decades ago, veggies and fruit are growing faster and larger, not absorbing as much nutrients.

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TexasTim65

3 years ago

Reply to MarkraD

Don’t forget to factor in that most grown today for commercial use have been genetically modified to be resistant to insects, drought etc along with growing faster.

We aren’t eating the same food that our parents and especially out grandparents did. If you get non-GMO seeds and grow your own garden you can taste the difference.

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Lisa_Hooker

3 years ago

Reply to TexasTim65

Modifications also included improved ruggedness for better packaging and shipping.

I don’t appreciate tomatoes that crunch like celery, and have little taste.

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MarkraD

3 years ago

Reply to Tony Bennett

I don’t trust futures in light of what happened with oil in 2008, I suspect certain players intentionally “Hunt brothered” oil to stimulate a crash and cash on sub-prime shorts.

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Tony Bennett

3 years ago

Reply to MarkraD

“I don’t trust futures in light of what happened with oil in 2008”

…

They are certainly gamed … but at the end of the contract someone has to take delivery.

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MarkraD

3 years ago

Reply to Tony Bennett

Correct, in 2008 buying oil up to $145 easily paid for itself by shorting RE.

In this case, doing the same with lumber could be very lucrative with builder shorts.

Same with any sector, oil, gas, grains, meats….just wait for the froth, push it to insane levels and short the sector that’s hurt by input price.

The CFMA (under CFTC jurisdiction) allows this, futures and derivatives are exempt from regular market rules/transparency.

.

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quantzic

3 years ago

The time to tick up the rates was in 2021. The Fed govs acted in self-preservation, then, and did nothing.

The sad thing is that now inflation has effectively moved 15-20% of the value of pensions into federal govt. spending, so that Biden can inflate employee salaries by 5.2% this year alone.

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8dots

3 years ago

Replacing China and the weapon industries are working day and night. Small businesses and innovative co benefit from higher rates,

that protect them from the whales, who fight and distort the world from their monitors.

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Tony Bennett

3 years ago

… but but many “experts” predicted Twitter would be in ruin after canning 75% of workforce …

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Zardoz

3 years ago

Reply to Tony Bennett

They only lost 40% of revenue, so they may have come out ahead, for now. Dorsey’s already stood up a replacement, so people have an alternative during Twitter outages.

I think Twitter will gradually collapse into “broken MySpace “ over the next couple years. Elon will move on to another ring in his circus.

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Idea of the Day: Construction Employment Saved the Economy But That’s Now Ending

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