Over the past few months, investors have faced many disappointments. But disappointing news isn’t making headlines.
The latest sign of a stalled economy is the fact that homebuilders missed expectations.
In August, Census Bureau data showed that builders started construction on homes “at a seasonally adjusted annual rate of 1,416,000. This is 5.1% below the revised July estimate of 1,492,000 but is 2.8% above the August 2019 rate.”
Economists polled by MarketWatch had expected housing starts to occur at a pace of 1.52 million. That short fall means thousands of jobs are at risk.
Home construction has a strong correlation with construction industry employment.
Housing Starts (Blue) and Residential Building Employment (Red) Are Down
Source: Federal Reserve
Construction jobs were back to pre-shutdown levels before the weakness in homebuilding. Job losses in that sector could have wide ranging effects throughout the economy.
The Homebuilding Slowdown Ripple Effect
For each employed homebuilder, economists estimate that another 2.2 jobs are created to support that employee.
New home sales also create jobs. Real estate agents, mortgage loan officers and support personnel associated with the transaction all depend on construction jobs.
For real estate and finance jobs, the ripple effects are even more significant. Economists estimate each of these jobs creates an additional 8.8 jobs.
Looking ahead, builders were issued permits to build 1.47 million new homes. That’s down 1% from July but about the same amount as a year ago. MarketWatch-polled economists expected 1.55 million permits.
Many permits are never used, so the coming months could see a smaller numbers of new homes.
Seasonal factors confirm a likely slowdown in construction as the weather turns. Homebuilders tend to build less in the fall and winter than they do in the spring and summer.
And new unemployment insurance claims are still high. The slowdown in housing construction is another reason to worry about the economy.
Michael Carr is a Chartered Market Technician for Banyan Hill Publishing and the Editor of One Trade, Peak Velocity Trader and Precision Profits. He teaches technical analysis and quantitative technical analysis at New York Institute of Finance. Mr. Carr is also the former editor of the CMT Association newsletter, Technically Speaking.
Follow him on Twitter @MichaelCarrGuru.