Wednesday, April 25, 2007

Will Construction Employment Lead to Recession?

For the last year or so, the blog Calculated risk has been discussing the effect of the housing slowdown on construction employment. His central argument is that as housing slows, construction employment will follow. Here is his explanation of the following graph linking housing and construction employment.

This graph shows starts, completions and residential construction employment. (starts are shifted 6 months into the future). Completions follow starts, and employment usually tracks completions.

Here is the graph:

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Let's coordinate that information with a chart of total employment and recessions. Notice that right before a recession employment rates are strong. However, also note the employment situation deteriorates rapidly as the recession begins and progresses.

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Will construction losses be severe enough to send the economy into recession? I don't know. But these two sets of data indicate we may be finding out soon.