- by New Deal democrat
In April total permits (dark blue in the graph below) declined -69,000 on an annualized basis to 1.412 million, while the less volatile single family permits (red, right scale) number declined -50,000 to 922,000. The slightly lagging and much more volatile starts number (gray, narrow) rose 22,000 to 1.361 million annualized:
The same data on a YoY basis demonstrates how it has been rangebound:
This is of a piece - and largely caused by - mortgage rates (YoY change, inverted, *10 in the graph below), which have also been rangebound between roughly 6% - 7%:
You may recall several years ago, even though starts and permits had declined sharply, the number of housing units under construction - the closest proxy for the actual economic impact of new housing construction - continued to levitate at all-time record levels. But ultimately they declined sharply as well, Once that happened, ever since the beginning of 2024, I have paid ever more attention to how deeply it would decline. Typically it has taken about a -15% decline to be consistent with a recession. Once that happens, the last show to drop is the number of employees engaged in residential building construction (red, right scale in the graph below). In April, housing units under construction dropped another -9,000 to 1.382 million annualized, a -19.6% decline from their October 2022 peak, while residential construction employment finally did decline as well, if only by -700:
Last month I wrote that “Since the significant downturn in units under construction began about 18 months ago, I suspect the turn in employment will take place within the next few months.“ I suspect April did indeed mark the turn.
To better show the trend, here is the same data on a YoY% change basis, together with manufacturing employment (gray):
With the exception of one month in 1995, any time both housing units under construction have been joined by residential construction employment as YoY negative, a recession has followed within 12-18 months. When manufacturing employment is also down, recession has been inevitable.
If April did indeed mark the turning point for residential construction employment, a loss of only -7,000 jobs in that sector over the next six months would be enough to set of recession alarm bells.