Wednesday, February 21, 2007

Projections of the Housing Hangover

From Bloomberg:

New and existing home sales dropped almost 10 percent last year, depressing demand for products from copper pipes to kitchen sinks and resulting in the loss of about 100,000 jobs in the U.S. Housing-related unemployment probably will increase in 2007, according to the Joint Center for Housing Studies at Harvard University in Cambridge, Massachusetts.

Even if the housing market improves in the second half of 2007, as the National Association of Realtors predicts, sales of furniture and construction supplies will stagnate, said Amal Bendimerad, a research analyst at the Harvard center. Housing and related industries account for about 23 percent of the economy, according to the center.

``Appliance manufacturers and other suppliers are already feeling the heat, but they may not feel the full impact until the end of 2007,'' Bendimerad said. ``There's typically a lag of as much as a year.''


U.S. furniture makers fired 28,000 workers in the past year, according to the Bureau of Labor Statistics. Homebuilders have cut 24,000 jobs in the past three months alone. The U.K.'s Wolseley Plc, the world's biggest distributor of plumbing and heating equipment, has eliminated about 4,500 positions in the U.S., about the same number that Whirlpool plans to shed.

Masco, maker of Behr paint and Delta faucets, is firing 8,000 people, or about 16 percent of its U.S. workforce, after reporting its first loss in five years. Emerson Electric, based in St. Louis, cut 230 jobs at a plant that makes furnace components and Stanley Furniture in Stanleytown, Virginia, fired half the workers at one of its factories.

There is obviously a great deal of debate about housing's overall economic impact. Also -- the numbers above are projections. It's practically impossible to predict with any degree of certainly exactly what an economy as complicated as the US will do. So take them with a grain of salt.

I did a quick read of the overall employment statistics about a year ago. To me, it looked like approximately 30% of job creation was directly or indirectly related to housing. As is my usual method of econometric analysis, I simply wanted to get a feel for what might be happening. The blog Calculated Risk has been predicting a loss of 200,000 - 400,000 construction jobs as a result of the housing slump. I have guestimated an additional 200,000 of professional and financial jobs.

The point of all this is we have yet to see a really bad hit to the employment numbers from the housing market. That is likely to change fairly soon. The large drop-off in housing starts this month will hit construction jobs within the next 3-4 months. I would expect financial and professionally related losses to begin in about 6 months as the number of new houses coming on line drops.