Saturday, August 26, 2006

Residential Construction Layoffs

by Calculated Risk on 8/26/2006 09:42:00 PM

Today I heard, through a company insider, about significant layoffs at one of the major (top ten) homebuilders. I can't confirm the information, so I won't mention the company, but I have been expecting layoffs in the residential construction field to accelerate in the second half of 2006.

Click on graph for larger image.
Note the scale doesn't start from zero: this is to better show the change in employment.


Currently there are 3.323 million people employed in residential construction in the U.S. according to the BLS. In July, the BLS reported that residential construction employment decreased by 9,000 jobs, and is now down about 37,000 jobs, a decrease of just over 1% from the peak in February.

If the current bust is similar to previous Residential Investment busts, reported residential construction employment might decrease by 800K to 1.3 Million over several years. That means residential construction employment might start falling by 30K per month or more, perhaps as soon as the August report.

This Press Enterprise article has some details on construction layoffs in California's Inland Empire: Construction hitting a wall

Inland home builders accustomed to years of unfettered growth are reassessing their expansion plans, slowing construction, discarding options to buy new land and trying to unload lots they already own.
...
Major public home builders have quietly begun to dismiss employees. Among the first to downsize in the Inland Empire was KB Home, which this year laid off 39 employees in the region, or about 10 percent of its staff.

"Virtually all the big builders are cutting back head count ... All are cutting costs and the easiest thing to cut unfortunately are people," said Stephen East, an analyst based in St. Louis specializing in public home builders for Susquehanna Financial Group LLP.

The cuts include field superintendents, office clerical workers and upper-level managers in land acquisition and entitlement, said Lee Terry, president of Lee Terry & Associates, an executive search firm for the home-building industry based in San Mateo.
...
Shea Homes recently let go five employees after lower sales projections led to elimination of a planned design center and the outsourcing of some other operations, said Bob Yoder, president of the Inland division of Shea Homes.
...
[Doug McAllister, Western Door's chief executive] said his company has dismissed less-experienced carpenters, and he plans to lay off about 20 percent of his 250 office, production and warehouse workers. He said to retain his best carpenters, he will reassign some to remodeling.
...
RSI Professional Builder Services in Chino ... [a] cabinet manufacturer ... let go 20 people, or about 10 percent of the company's work force, said Eric Vanderheyden, president and general manager.

"We are just scaling back our expectations," he said.
The hope is that these laid off workers will find other work.
Unemployment in the Inland region is the lowest it has been in several decades, so those who lose jobs in real estate are likely to be rehired, said Inland economist John Husing.

For instance, construction workers no longer needed to build houses could build commercial buildings and public projects or become warehouse workers and truck drivers, he said.

"Anytime something happens like this there is a little pain. But we are better able to handle it than at any time in the 42 years since I have been studying the economy," Husing said.
I believe Dr. Husing has it backwards; the Inland economy is strong because of residential construction. Therefore I suspect these workers will have a difficult time finding other jobs. And many jobs in housing related industries have non-transferable skills, require low levels of education, and are relatively well paying. So even if these laid off workers find new employment, they may have to take significant pay cuts.

The August employment report will be released next Friday, and might show the first significant impact of the housing bust on employment.

UPDATE: From Nouriel Roubini: Eight Market Spins About Housing by Perma-Bull Spin-Doctors...And the Reality of the Coming Ugliest Housing Bust Ever ...

And from The Observer: Paul Ashworth, chief US economist at Capital Economics suggests "The downturn in the US housing market will force businesses to slash 73,000 jobs a month in the new year". See The Observer: US housing slump fuels crash fears