Economic Outlook: Job Losses Continue, Builder Confidence Posts Historic Drop

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The latest weekly economic analysis from NAHB Chief Economist Robert Dietz on the COVID-19 pandemic: The next two months of economic data will show signs of a significant economic decline. For that reason, markets and businesses need to adopt a two-quarter perspective with respect to an expected start of a rebound. Recent stock market gains, buoyed by relatively reduced rates of virus transmission, are based on this outlook. As discussions of reopening the economy on at least a partial basis are underway among some states, economists believe that construction and manufacturing are sectors that could see faster rates of recovery, relative to enterprises in the service sector. Nonetheless, the consequences of virus mitigation and the sudden stop for the economy continued with the country experiencing a third consecutive week of significant job losses (5.2 million new jobless claims). Over the last four weeks, more than 22 million Americans have filed for unemployment. Although there has been job creation in industries such as distribution and groceries over the last month, this massive net level of job loss will push the April reading of unemployment to at least 14%, after a 3.5% rate in February. And the impacts on the housing market are large. After weekly data revealing significant declines in new home buyer traffic, the NAHB/Wells Fargo Housing Market Index (HMI) declined 42 points in April, falling from a strong level of 72 in March to 30. This was the lowest HMI score since June 2012; the first reading below the key, breakeven level of 50 since June 2014; and the largest monthly decline in the history of the index, which goes back to 1985. The decline in the HMI points to construction declines in the months ahead. Census data for March revealed the start of that slowing, as single-family construction declined almost 18% to seasonally adjusted annual rate of 856,000 from February to March. Multifamily construction pulled back more than 30% in March, with particularly large declines in the Northeast. The HMI data suggest these reversals will continue in April and May. As the economy experiences what is a government-imposed, public health-related recession, it is important to note other differences associated with this downturn. For residential real estate, housing was overbuilt going into the Great Recession, while today a housing deficit of approximately 1 million units currently exists. For this reason, housing should play its traditional role of helping to lead the economy out of the recession once virus mitigation shows further signs of progress.

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