CHICAGO, Jan. 20, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: D.R. Horton (NYSE: DHI), Plum Creek Timber (NYSE: PCL), Berkshire Hathaway, (NYSE: BRK.B), USG (NYSE: USG) and Bob Evans (Nasdaq: BOBE).
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Here are highlights from Wednesday's Analyst Blog:
Housing Starts Down, Permits Up
It is hard to overstate just how important housing starts are to the economy. Yes, at this point, residential investment has declined to the point where it looks almost insignificant -- just 2.22% of GDP in the third quarter, down from 6.34% of GDP at the height of the housing bubble.
However, historically, residential investment -- of which new home construction is the largest part -- has always been the main locomotive in pulling the economy out of recessions. Even the 2001 recession, which was not caused by a housing downturn, saw a sharp acceleration in housing starts as the recession came to an end. Of course, since starts were jumping but were not starting from a depressed level, that boom later became known as the housing bubble that put us in this mess to begin with. Every other recession was preceded by a sharp fall in housing starts.
This is no coincidence. Each new home built generates a huge amount of economic activity. It put construction workers back to work, and construction workers have been particularly hard hit in the Great Recession, accounting for over 25% of the total jobs lost, even thought they were less than 6% of the total workforce when the recession started.
The effects go much further than just the profitability of D.R. Horton (NYSE: DHI). Each new home requires a lot of lumber from a firm like Plum Creek Timber (NYSE: PCL), roofing and insulation materials from Johns Manville - part of Berkshire Hathaway, (NYSE: BRK.B) and wallboard from USG (NYSE: USG).
This list goes on and on, but it also means jobs for the lumberjacks and factory workers in those plants. They are not included in that "one out of four jobs lost" figure. As they and the construction workers go back to work they are also going to have more money to spend -- perhaps even go out to eat at Bob Evans (Nasdaq: BOBE) -- thus creating jobs for cooks, waitresses and busboys.
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