The June, 2010 construction industry employment figures are depressing. HISTORICALLY, The summer is the best time for construction jobs. Yet, the figures for last month show a DROP in construction jobs. The same month saw thousands of college graduations for majors in architecture, construction management, planning, real estate, civil engineering, finance, etc.. Their parents and the recent graduates have great hope for their future. These young folks are eager to contribute their newly acquired skills towards solving problems. Then the reality of hitting a brick wall- The firms that they thought would be eager to hire them, instead told them there are not only not hiring but reducing their present staffs. With little new construction, there are no new work for all who depend new construction for their livelihood. This includes a huge field. Not only the recent graduates I have listed, but all those involved in building products used in construction, appliances, furniture, flooring, office equipment, mortgages, title companies, lawyers, accountants,- in fact- almost all businesses suffer when there is a dearth of new construction.
What is the answer to the economic woe caused by no new construction?
Where is residential construction? At first blush, the demand for housing is overcome by a huge inventory of unsold homes. Why do we have this huge inventory? Has there been a reduction in population growth? Has the death rate increased? There has been no change in either the population growth or the death rate. What has changed to bring about this economic morass in housing sales?
The Gross National Product(GNP) is the sum of all goods and services sold in a year. Seventy percent of the GNP is consumer spending. Consumer spending is down. Why? Consumer confidence is way down. Why? With the highest unemployment rate in years, both public and private employers are reducing their staffs. Folks are uncertain of the future. The rate of personal savings is way up. Folks are preparing for what could be a bleak future.
Most buyers do not pay cash for homes or cars. These buyers depend on financial institutions to lend them most of the capital required for their purchases. This available credit is a valuable asset for both the buyer and seller. The stock market September 2008 huge drop in the Dow Jones Index was disaster for almost all U.S. financial institutions.Much of their capital was invested in the stock market. The stock market had lost over 50% of its value. The largest financial institutions were suddenly in very precarious financial positions. Their capital had shrunk below the minimum required to for these financial institutions to lend to their customers. In fact, unless these institutions replenished their capital accounts, they would be required to call billions of dollars of loans, many to America’s leading companies. Lending any new funds was impossible. The Bush Administration sponsored and had passed legislation to loan these financial institutions almost a Billion dollars that would replenish their depleted capital accounts. The goal of this bail out legislation was to get the banks to start lending to consumers. After these loans were made, these same financial institutions that suggested these Federal bail outs, were still so concerned about the economy that no new loans were made to consumers. With consumer sales slowed, companies needed to reduce their operating costs, a huge elimination of jobs followed. This added to the fears of consumers. Although the stock market was steadily recovering, consumer sales remained stagnant. May.2010 retail sale results were a disaster. Many economists and others with crystal balls who had announced the end of the Great Recession, suddenly were changing their tune. Now comes June,2010 retail sales results.
July 7 (Bloomberg) –” U.S. retailers’ sales are growing at the fastest pace in four years, a sign consumers may be overcoming concern about unemployment and depressed home values.Sales probably expanded at an average monthly rate of 4 percent in the first five months of the retail fiscal year that began Jan. 31, the biggest gain since 2006, the International Council of Shopping Centers trade group said in advance of its June report tomorrow. Nordstrom Inc. and Kohl’s Corp. are among chains that will report June sales increases at stores open at least a year, according to analysts’ estimates.
The predictions of the owners of crystal balls and “economists” are on a constant roller coaster. going from one extreme to the opposite opinion in minutes. . Depending on their very subjective interpretation of data and the consensus of these “experts”.
Increased retail sales means more new jobs, just as the recent drop in consumer sales led to huge layoffs. Eventually, this will lead to new construction. How long this will take, is anybody’s guess? As sales volume increases, we must hope for Xmas sales much improved over the last two years. . Remember.many retailers earn most of their profit from Thanksgiving to Xmas. One clue will be increased retail inventories in the next few months. This will show how many manufacturers, retailers, and banks believe there will be much increased Xmas sales. This can the key to new employment opportunities. For now the outlook is improving. Will it stay that way? Will sales grow this summer?
What does your crystal ball show?