For nearly three years, the U.S. manufacturing sector has been growing steadily due mostly to pent-up demand for business investment and exports of high-end components and tooling. To this add more stable consumer demand due to a gradually improving labor market and regional booms due to oil and gas extraction, and our economy has been getting better, albeit slowly.
For years, the biggest drag on the economy has been construction, especially residential. The bottom apparently was three years ago, but we haven’t really improved much since then. Just in the last week, however, three measures of health in housing released for April were all positive:
- Housing starts were up 2.6%
- Sales of new home single-family homes increased 3.3%
- Sales of existing homes rose 3.4%
Lawrence Yun, chief economist for the National Association of Realtors, which tracks the sales and prices of existing homes, says that a downward trend in inventory has turned a buyer’s market into a balanced one in some areas and that in some areas there’s even now a seller’s market.
It’s logical that we would start to see a recovery in housing. There has been little increase in the housing supply for more than three years, and employment has risen. Yes, we are still 5 million jobs below the January 2008 peak, but we are 3.8 million jobs above the February 2010 bottom.
The stubbornly high unemployment rate gets all of the attention, but when it comes to demand for housing — or freight, for that matter — the raw number of new jobs is more important than the statistical relationship of those with jobs to those seeking them. New jobs mean household formation — college graduates who are finally moving out of their parents’ house, for example.
Let’s be realistic. A recovery in housing doesn’t mean construction at the rates we saw most of the last decade. As we know, those rates weren’t sustainable. But even if we could just get back to the long-term trend of 1.5 million housing starts a year, that would mean more than doubling the current rate of construction. Even that rate might be optimistic in the near term, but a pretty sharp increase from the current low base is certainly quite reasonable.
More residential construction means higher demand for construction materials and home furnishings, of course. But there would be a supply side impact to trucking as well as a demand side. Residential construction typically draws labor from the same pool that supplies truck drivers. Many carriers today report difficulties finding drivers even with weak housing construction. What would things be like if trucking companies had to compete for labor with strong housing market? This scenario works to trucking’s advantage in freight pricing, but individual carriers could lose if they can’t fill enough trucks to capitalize on those favorable rates.
