by Calculated Risk on 4/03/2010 07:43:00 PM

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Click on graph for larger image in new window.

This graph shows single family housing starts through February and the unemployment rate through March (inverted).

You can see both the correlation and the lag. The lag is usually about 12 to 18 months, with peak correlation at a lag of 16 months for single unit starts. The 2001 recession was a business investment led recession, and the pattern didn't hold.

Usually housing starts and residential construction employment lead the economy out of a recession, but not this time because of the huge overhang of existing housing units. Housing starts (blue) are moving sideways.

The second graph shows construction payroll employment. Unfortunately the BLS didn't start breaking out residential specialty trade construction employment until 2001 - so this graph shows total construction.

Usually residential leads both into and out of a recession, and non-residential lags a recession. But we can't see that here.

But this graph does show that there are 2.13 million fewer construction payroll jobs than at the peak. About 1.3 million of these are residential construction. Since non-residential construction is still declining - and residential is flat - this is a key area of employment that will see little recovery this year.

Of course this is only about 14% of the total unemployed and other sectors will probably do better, but this is usually a leading sector for the economy. Since I expect the housing recovery to be sluggish, I also expect unemployment to remain high throughout 2010.