Our government started keeping records on housing activity right after World War II. Never since that time has this country seen a fall in new home construction as we have seen in this morning's report (See Full Story). Home construction fell by 4.5 percent nationally in one month, and nearly 8 percent in the last two months. In the Northeast, there was a phenomenal drop in construction of 31 percent! Normally, a slowdown in housing construction might be measured anywhere from tenths of a percent to one or two percent. To have two extreme back-to-back losses with the numbers widening from last month's report is very disconcerting. What next? A 5 percent drop nationally! Will home construction in the Northeast just come to a complete standstill?
Housing, more than autos, is a key labor and material industry in this country. It effects more workers from framers, to finish carpenters, to plumbers, painters, and so on. It effects the plumbing, roofing, flooring, electrical, lumber, concrete, drywall, paint, and a variety of other industries. And, unlike the automobile industry, it is local to you. In fact, depending on where you live, you might have a few people on your own street that could easily lose their jobs in a home construction meltdown. And, you've got to know, that with home construction falling, commercial construction has to be falling just as fast. In Las Vegas, where I live, it is at a near standstill.
The severe drop in home construction is due to too much inventory and extremely tight credit. This is coupled with the consumer's fear to commit to a new home in a recession. Something I have talked about in this blog before, however these numbers are almost frightening because of their magnitude. Certainly, it is normal to see a slowing in construction as we move into the winter months, but this is much worse and reveals the compounding effect of the slowing economy coupled with normal seasonal inactivity.
I think the jobs numbers going forward will be just terrible and accelerating. Everyday, we hear of major companies laying people off. Those kinds of job-loss announcements are measurable and out in the open, but the construction industry is made up of hundreds of thousands of independent contractors. There won't be some big announcement to say "X" number of jobs are being cut. Instead, the national unemployment number will just jump rather unexpectedly. Maybe to as high as a 7 or 8 percent unemployment rate. My guess is that we will see that happen in one of the months of the first quarter of next year. It will be a shock and expect our stock market to have a very bad day when that news is announced. Our lawmakers will be scrambling, again, to add even more stimulus to the economy but, as usual, it will be in all the wrong places. Just mark my words.