CHICAGO, March 17, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: Bob Evans (Nasdaq: BOBE), D.R. Horton (NYSE: DHI), Wal-Mart (NYSE: WMT), Plum Creek Timber (NYSE: PCL) and Masco (NYSE: MAS).
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Here are highlights from Wednesday's Analyst Blog:
Housing Starts Plunge, Again
Each new home built generates a huge amount of economic activity. It puts 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.
That is just the direct construction jobs, but lower building activity also means fewer jobs in the factories that produce building materials, which are counted as manufacturing jobs. Clearly jobs in mortgage finance are also affected by the housing slowdown. 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.
Regionally, the Northeast was the weakest, with permits down 27.8% on the month and off 32.9% year over year. The West saw permits drop 13.6% for the month and off 35.8% from a year ago. In the Midwest, permits fell 5.4% for the month and were down 17.9% from a year ago. The South, the largest of the four regions, had the smallest decline for the month, down 1.4% from January and down 10.6% from a year ago.
There is a certain level of ambiguity about whether a rise in starts is good news or bad. We need less supply to help the market clear, but in the meantime, the economy is going to be stuck in limbo, unless we can find another locomotive to help pull us forward. The one we have always relied on in the past is clearly derailed.
Every housing start represents a lot of economic activity, and the effects go far beyond the bottom line of the big home builders like D.R. Horton (NYSE: DHI). It represents jobs for the carpenters and roofers, who will then have the money to go spend at Wal-Mart (NYSE: WMT). It also represents more demand for wood from firms like Plum Creek Timber (NYSE: PCL) and jobs for lumberjacks. It also represents jobs for people making plumbing fixtures at Masco (NYSE: MAS). The conundrum is how to get these people back to work without simply adding to the existing housing glut.
Additional government spending on infrastructure would be the logical solution. After all, we have huge needs to rebuild out crumbling infrastructure. Better infrastructure would enhance our long term economic competitiveness. The government would not be competing for resources with the private sector, it would be competing with idleness. Even with the recent rebound in interest rates, the cost of financing the infrastructure rebuild would be extremely low, given that T-note yields are in any historic perspective, low across the yield curve.
However, in the current political environment, that is not going to happen as Congress is more likely to slash existing infrastructure spending rather than increase it. This is following the absolutely daft economic theory that putting an incremental $100,000 into the after tax income of a mid level Wall Street investment banker will instill enough confidence in the economy and produce more jobs, rather than putting an unemployed construction worker back to work fixing our bridges so they don't collapse on us. Well, who ever said that Congress is logical.
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