HMI Hits 47…Employment Gains To Follow

• Posted by ToddSullivan
• on December 18th, 2012

“Davidson” submits:

The National Assoc of Home Builders reported the HMI (Housing Market Index) for Nov 2012 at 47 this morning-see chart below. Last month value was adjusted down from 46 to 45. The trend is so strong that one should expect some pull back in the numbers which represent and unprecedented 82% Year-over-year rate of change, or more than twice the 1991 recovery rate which was thought to have been worse than our more recent collapse.

What is key is that we see a rise in Residential Construction Employment and Large Construction Employment. To date the improvements have been seen only in Heavy&Civil Construction Employment which did not suffer the extensive losses shown by the other two categories-see chart Construction Employment All Types. It is Residential Construction Employment which had ~50% job losses and has essentially been flat with tighter lending during the Greek debt media coverage beginning in July 2011. Residential Construction Employment carries an 8x job multiplier throughout the rest of the economy which means that 1 ResConEmployee has the effect of 8xGeneral Employees or 1 creates an additional 8 and then 1+8 =9. At some point the pace of the HMI should be reflected in Single Family Starts which in turn should be reflected in a rise in Residential Construction Employment and finally in the Household Survey.

The current trends are positive and by all historical measures should flow accordingly into advancing housing activity. This is the last piece of the economic puzzle that many need and I continue to urge investors to be as committed to equities as is appropriate.

My take:

I have said for a while and continue to believe that 2013 is the year construction employment surges. For most of 2012 builders have been simply finishing off projects mothballed during the crash ’08-’11. While that leads us to good sales numbers, it causes employment to lag as the number of employees needed to finish a project vs those needed to go from start to finish is materially fewer. Inventories across the nation are at historically low levels and housing demand keeps growing. Builders in ’13 will begin breaking ground on new projects which will lead to growth in employment for res construction.

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