by Calculated Risk on 10/26/2006 11:58:00 AM

Please see the previous post: September New Home Sales

Click on graph for larger image.

This graph shows September New Home sales for the last 20 years. The recent sharp drop in sales is similar to the decrease at the start of the 1990s housing bust.

September sales have almost fallen back to the 2002 levels.


And this graph shows YTD New Home sales through September. It now appears that 2006 will finish as the 4th best year behind 2003.

Given that sales have fallen back to 2002/2003 levels, it would seem reasonable to expect that BLS reported residential construction employment will fall back to the levels of those same years. The following chart shows BLS data for the last 6 years.

Residential Construction Employment, Monthly Average, Thousands
Year	Residential building	Residential specialty trade contractors	Total
2001	781	1849	2630
2002	803	1887	2690
2003	837	1965	2802
2004	896	2123	3019
2005	949	2278	3227
2006	979	2346	3325

There will probably be 600K jobs lost in reported residential construction employment over the next couple of years - if housing stabilizes at this level. If housing continues to fall, something I think is likely, then even more jobs will be lost.

Over the next few quarters, completions is a better indicator of potential residential construction job losses than sales.

This graph shows starts, completions and residential construction employment. (starts are shifted 6 months into the future). Completions and residential construction employment are highly correlated, and Completions lag Starts by about 6 months.

Based on historical correlations, it is reasonable to expect Completions and residential construction employment to follow Starts "off the cliff". This would indicate the loss of 300K to 400K residential construction employment jobs over the next 6 months.

One of the most reliable economic leading indicators is New Home Sales.

New Home sales were falling prior to every recession of the last 35 years, with the exception of the business investment led recession of 2001. This should raise concerns about a possible consumer led recession in the months ahead.