The Liscio Report, via Barron’s Alan Abelson, notes the multiplier effect of each dollar spent on Housing.
"We’ll spare your having to listen again to the
litany of woes that are likely to issue from the great housing boom
turned bust. Suffice it to say that it’s destined to wreak serious
damage on the consumer’s will and wherewithal to spend, which has been
the great enabler of economic growth, not only for this fair land but
just about the whole planet.
If the consumer, with his income badly lagging while
he must contend with unprecedented high oil prices and rising inflation
generally, is effectively deprived of the enormous spring of cash and
credit that his house has dependably provided for so many years now –
the golden crutch, as it were — he’ll have little alternative but to
spend less and save more. Nor, in our view, is this saturnine prospect
diminished one whit by July’s brisk retail sales, which owed everything
to freakish hot weather that touched off a run on summer apparel, air
conditioners and kindred beat-the-heat stuff, along with the last gasp
of auto incentives that produced a blip in car sales.
The powerful impact the great boom in housing has
had on the economy — and a measure of how much growth overall will
suffer from the end of that boom — is furnished by our friends at the
Liscio Report. Each dollar spent on residential construction, they
observe, generates $1.27 in additional economic activity. That’s topped
only by manufacturing ($1.37) and handily bests the contribution of
health care (54 cents to 81 cents, depending on which part of that
amorphous field you’re talking about), retail (57 cents) and finance
Not only, as the Report comments, has "the kick from
housing…been enormously important in recent years," as those numbers
make emphatically clear, but the actual effect has been far greater
since that $1.27 of additional economic thrust doesn’t include the
hardly inconsequential economic stimulus of remodeling or
Housing’s fade seems destined to hurt all the more
since nothing else — not capital spending or government largess –
seems primed to take up the slack."
I find it hard to imagine how a soft landing can be engineered from the Housing Slowdown — short of rapid Fed cuts . . .
The Peroxide Plot
UP AND DOWN WALL STREET
Barron’s MONDAY, AUGUST 14, 2006