Friday, May 18, 2007

Residential Construction Employment Conundrum Solved?

by Bill McBride on 5/18/2007 01:47:00 AM

The BLS released the Business Employment Dynamics statistics for Q3 2006 yesterday. This data is released with a substantial lag (Q3 2006 was just released), and it gives a fairly accurate estimate of the annual benchmarking for the payroll survey. In 2006, the benchmark revisions were substantial. On Feb 2, 2007, the BLS reported:

The total nonfarm employment level for March 2006 was revised upward by 752,000 (754,000 on a seasonally adjusted basis). The previously published level for December 2006 was revised upward by 981,000 (933,000 on a seasonally adjusted basis).
This BED report suggests that the revisions will be down this year, especially for - you guessed it - construction employment! Based on the BED data, construction employment was overstated by 111K during Q3 2006. Since non-residential construction was still strong in '06, most of this downward revision will probably come from residential construction employment.

For those interested, the BED data is from the "Quarterly Census of Employment and Wages (QCEW), or ES-202, program." The sources "include all establishments subject to State unemployment insurance (UI) laws and Federal agencies subject to the Unemployment Compensation for Federal Employees program."

Construction EmploymentClick on graph for larger image.

This graph shows housing completions vs. residential construction employment. The green line (Q3 only) with the arrows shows the impact of the BED revision on residential construction employment.

My guess is Q4 (and Q1 2007) will also show substantial downward revisions in residential construction employment. This probably means the expected job losses have been occurring, but simply haven't been picked up in the initial BLS reports.

Unfortunately, we will not know the size of the revisions until the advanced estimate is released in October.