Housing Labor Pains- Bearish or Bullish?

There’s an underbelly of pain associated with the strong employment numbers being cranked out by U.S. companies- some industries already working through structural shifts are finding it harder than ever to staff up.

The construction industry finds itself in such a bind. According to an analysis by BuildZoom, a website for contractors, the size of the U.S. construction workforce has shrunk by 200,000 from 2010 to 2015.

This reduction contrasted with a boom of workers from 2000 to 2005 when the population expanded 24%. Luckily for home builders, that increase in workers coincided with a long and steady climb in the number of houses being built. New home starts rose from 1.5 million annually to slightly more than 2 million from 2000 to 2006.

Then the market cracked. That 2 million new home start number in the year 2006? It fell to less than half a million in 2009. While the number of new homes built has steadily increased each year since 2009, the size of the construction labor force has moved in the opposite direction, causing a distressing labor crunch.

The draconian housing drop in the 2006-2009 period looks to have permanently scared off a whole new slice of construction workers. Many of those laid off found it nearly impossible to find new jobs. They went back to college or sought less cyclical skill sets with more job security.

It makes sense that those who kept their jobs were more experienced, and therefore, usually older workers. The bad news is that many of these workers will be retiring soon. The younger set that would normally be trained and groomed to take over bolted from the industry. The pain of this demographic exodus is wreaking havoc on construction firms.

Despite the fact that new home units are trending about 1 million per year, almost half of the 2 million annual peak, the percentage of builders experiencing a shortage of workers is almost as high as it was back during that period.

According to Paul Emrath, an economist for the National Association of Homebuilders (NAHB), “the share of builders reporting either some or a serious shortage has skyrocketed from a low of 21 percent in 2012 to 46 percent in 2014, 52 percent in 2015, and now 56 percent in 2016.”

The current immigration environment is not helping matters. Many hard labor workers are immigrants. The usual pattern is that foreign workers return to their homeland when work is short and then return when demand rebounds. Tougher immigration enforcement has states like California and Texas, whose construction population is typically 40% of the total, in a tough situation.

These labor pains are evident in many of the public homebuilder company results. The shortage of new homes hitting the market is crippling inventory but lifting prices. Prices of existing homes are jumping. The median price of a home has risen 30% from 2012 to mid-2017.

To lure new workers, construction firms are being forced to increase wages. In conjunction with higher healthcare costs, builders are increasing prices of new homes to cover these additional expenses.

The results from the construction industry recruiting a larger than usual portion of young workers into its labor pool will reverberate through the entire worker population. Already I hear from quick serve restaurant companies that labor is tight. Higher minimum wages in many states are not enough to coax workers to industries like retail and restaurants that may not promise the longer term job skills that construction offers.

Like most economic imbalances, this labor shortage will take some time to work through. Unlike minimum wage jobs, most skilled construction jobs require significant training. Training a whole new troop of construction workers is a long process. Young bucks brought on for grunt work may take years of training before handling a job on their own.

Yet this labor shortage isn’t an all out bearish call on the construction industry. I view a kink in the supply chain a much less negative sign than an issue with demand. As with all the stocks I work on for the Profit Catalyst Alert portfolio, I’m constantly monitoring larger industry trends and then layering those over the specific fundamentals for each company.

What To Read Next?

Chilling Research From the Economist Who Predicted the 2008 Housing Collapse

Little-Known Gov't-Backed Payment System Delivers $3,287 Extra Per MonthAn acclaimed economist who’s predicted nearly every major economic turn over the past 30 years…including the Dow’s rise past 14,000 points, the 2001 tech crash, and the 2008 housing crash… just made his boldest prediction to date. You’ll be surprised when you hear what he’s forecast for the next two years. You must act now…the dominoes have started falling.

>> Click here to get the details now.<<

[options strategy]
[options strategy]