Construction Employment, Contractors, Jobs

As I mentioned in earlier this year, we sold our house, and moved late March.

Since settling in, we started some work on a house that was 50 years old, pretty much all original condition. We extended a half bath into a full bath, renovated the upstairs bathroom (Mrs. Big Picture called it "The ugliest bath in America"). We put in Central A/C; In the den, we had to replace the rotting sheetrock in one wall, and we added high hats, tiled the floor with slate, lots of other little items. An old tree that was hanging dangerously over the main part of the house had to be pulled down, and as long as we were doing that, we yanked out all of the overgrown shrubs in the front of the house.

What’s been amazing — and very different than the last renovation work we did 3 years ago — is just how quickly and easily contractors have been to find:

• The tree folks removed two big old trees, and ground the stumps down to sawdust — a week after we hired them;

• The bathroom and tile guys were supposed to start late August – and due to cancellations, they began work a month early. They are just about done — 4 weeks before they were scheduled to start;

• Keyspan Energy installed the Central A/C — only a week after giving us an estimate, a crew of 6 guys came to the house and installed a 3 1/2 ton Trane unit, and all the venting;

• On Friday, we spoke with the painter, who was highly recommended by friends. We needed them to pull down old Wallpaper, spackle, prep, and paint the full interior. When are they going to start work? They began yesterday. Oh, and they were exceedingly reasonable;

In short, every contractor we spoke with, booked, or began work was unbelievably available, flexible on time, negotiable on price.

Perhaps this recent headline has something to do with it: Construction job losses could top 1 million

While BLS is reporting that construction job losses are de minimis,  the reality int he real world is that Job losses  in the construction sector are significant. Unlike what you may have heard, I do not believe   nonresidential commercial construction is anywhere near offsetting the loss on the residential building side:

"Construction employment fell about 15 percent in both the
1990s and 1980s recessions, and it dropped about 18 percent in
the recession of the mid-1970s, according to the Bureau of
Labor Statistics (BLS).

In each case, the sector’s declines were far steeper than
overall job losses, and recovery took longer. But in the 2001
recession, declines were relatively modest as consumer-led
demand offset weak business spending.

About 7.7 million Americans are employed by construction
companies, according to the BLS, down about 75,000 from a peak
in September 2006. The sector’s unemployment rate of 5.9
percent compares with 4.6 percent for the overall labor force. A 15 percent decline now would mean more than 1 million
jobs lost."

According to BLS economist,  Chris Goodman, there is a closely correlation between construction spending and nonresidential commercial construction job cuts — on about a 6 month lag. "Construction spending in June fell for the first time since
January, while private residential construction posted its 16th
straight monthly drop.


During the boom, contractors were unbelievably busy, non-negotiable — and bit difficult, given all the demand. Not surprising, that is no longer the case these days.

Anecdotal evidence for sure — but the degree and severity of the change has been quite astonishing . . .


Construction job losses could top 1 million 
Nick Zieminski
Reuters, Sun Aug 26, 2007 12:34PM EDT

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New Home Sales= Zero Gains, +/-

"The U.S. Commerce Department said Friday that new home sales rose 2.8% in July after falling 4% in June."

That was how most of the MSM covered Friday’s New Home Sales. 

The problem is, it is not correct.

First, let’s start with the actual data release, via Commerce:

Sales of new one-family houses in July 2007 were at a
seasonally adjusted annual rate of 870,000, according to estimates
released jointly today by the U.S. Census Bureau and the Department of
Housing and Urban Development.

This is 2.8 percent (±12.0%)* above the revised June rate of 846,000
and is 10.2 percent (±12.3%)* below the July 2006 estimate of 969,000.

That seems pretty straight forward — except the way it was reported ignored the statistical reality.

Commerce noted what the margin of error and statistical significance was.  They included this small caveat about the actual data:

Estimated average relative standard errors of the preliminary data are shown in the tables. Whenever a statement such as “2.5 percent (±3.2%) above” appears in the text, this indicates the range (-0.7 to +5.7 percent) in which the actual percent change is likely to have occurred. All ranges given for percent changes are 90-percent confidence intervals and account only for sampling variability. If a range does not contain zero, the change is statistically significant. If it does contain zero, the change is not statistically significant; that is, it is uncertain whether there was an increase or decrease.

So the correct answer to the question "What were New Home Sales in July 2007" is as follows:

There was no statistically significant change from June to July. According to the Department of Commerce, the range was -9.2% to +14.8%.

There was no statistically significant change on a year-over-year basis, either. Commerce reported a range from -22.5% to +2.1%.

New_home_sales_julyThis is not how it gets reported.

I am not sure if it is a case  of innumeracy or of the media wouldn’t have a story about New Home Sales otherwise.

As the Commerce Department itself reported in the footnotes, Friday’s New Home Sales were statistically meaningless.

Even the nearby chart  has the illusion of precision

Existing Home sales were out today, and may come in for the same treatment later this weekend.

Note: This is before we even factor in the cancellation factor after the jump:


UPDATE August 27, 2007 2:21pm

I see that Northern Trust’s Paul Kasriel comments:

Gain in New Home Sales Is Inconsistent with Reports from Home Builders

Today’s report that suggests a recovery in sales of new homes is not anywhere close. At the same time, the increase in sales and price are suspect because the financial press has a number of stories everyday about home builders reporting significant declines in sales and earnings, a plethora of incentives to move sales, cancellations of contracts, and so on. Cancellations of contracts to purchase homes are not reflected in this report. It is reasonable to assume that excluding cancellations leads to overestimating sales of new homes and underestimating inventories of unsold homes. Also, the home builders (see chart 4) survey for August showed the second lowest reading in the history of series. We need to see reports of future months and watch out for revisions of estimates of home sales.



AUGUST 24, 2007 AT 10:00 A.M. EDT

How does the Census Bureau handle cancelled sales contracts?

Gain in New Home Sales Is Inconsistent with Reports from Home Builders
Northern Trust Global Economic Research

August 24, 2007

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