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A Mystery: Why So Many Carpenters?

Posted by: Peter Coy on June 1, 2007

One of the greatest mysteries of the housing slump is why there have been so few layoffs in residential construction. carpentry.gif
The mystery deepened today when the Bureau of Labor Statistics announced a seasonally adjusted employment decline of just 800 jobs in May. That’s less than a rounding error, meaning that essentially there was no change in the number of people building homes in spite of the widely reported decline in construction.

To be precise, according to the BLS, residential construction employment fell to 996,200 in May from 997,000 in April. In May of 2006, employment was 1.02 million, so we’re down by only a little more than 2% from a year ago.

The most plausible explanation for this that I’ve heard is that lots of the workers who were laid off were illegal immigrants working off the books, who weren’t counted by the government in the first place. But that doesn’t fully explain things, because why would builders lay off lots and lots of illegals but almost no regular employees?

Your theories welcome.

Reader Comments


June 1, 2007 11:40 AM

Peter, the answer is simple, if you think about it and study the balance sheets of home builders. It is the "flywheel effect."

In both residential and commercial real estate, development cycles have grown longer. Builders have to invest vast amounts of time and money in projects just to get approvals. From that point, there's no turning back.

Look at balance sheets of any public home builder. Their current liabilities far exceed current assets -- up to 4 times in the worst cases. They have to liquidate homes just to meet bills over the next few months. The only way to liquidate them is to finish them fast -- by hiring more workers, if necessary. Homebuilders are facing a huge liqudity/credit squeeze. Soon, the same will be true of commercial developers, too.

The problem is -- the flywheel works in both directions. It accelerates to complete jobs and raise cash. But it takes a very long time to start up again, assuming new cash can even be found. That's why we are facing several years before home-building starts will turn back up. You won't have the same combination of financing, approvals and momentum in place for years. Commercial real estate will get just as dead, for the same reason but with a lag. By 1st quarter of 08, construction will subtract about 1.5% from GDP.

P.S. What you guys are not writing about is the economic dislocations created by housing. An economy is a finely meshed set of gears. If one gear strips, it screws up the rest of the machine. That's what you will soon start to see.


June 1, 2007 1:17 PM

Good blog post on this point here:
The figures can only be false, and the birth/death model gets the blame.

Matt Carter

June 1, 2007 6:22 PM

The Mortgage Bankers Association recently published a report, citing numbers from the BLS, concluding that 45,000 residential housing construction-related jobs were eliminated in 2006. They said they were counting special trade contractors (electricians, plumbers, painters, roofers etc.)

The report is a little sparse on raw numbers, but if you look at the charts on pages 2 and 3, it looks like they are talking about more than 3 million jobs in residential construction-related fields in excess of 3 million jobs, so that's still not much of a dent.

Check out this NAHB report that puts construction-related jobs up around 3 million in 2003.

The MBA report cites the illegal immigrant theory.

"Job losses in construction-related employment have been relatively small compared to the decline in home building activity. One potential explanation is that the construction industry employed large numbers of illegal immigrants who were never entered on reported payrolls. They may have been the first to be laid off as home building activity has declined. The fact that remittances to Latin American countries have fallen this year supported that view."

As far as the flywheel theory goes, MBA says residential builders have been shedding jobs every month since April 2006, with the exception of August 2006.

The BLS numbers are difficult to analyze, because they give you a breakdown of the occupations in residential construction, but they don't tell you how many of the people in each occupation are working in residential (a carpenter, electrician or plumber) may be doing non-residential work)


June 2, 2007 10:34 AM

I agree that the figures are false. Whether it's by using the birth/death model or shuffling the books till a convenient quarter for the fed to move the losses to, or whatever the deal is...I will always believe the figures are manipulated. Nice to know we can trust our administration, isn't it! Another possible explanation is that I have never, never, never seen so many road construction projects going on all at one time in my life. Is it a coincidence that all of the sudden we have 20 bridges and roads being redone, more than we've had done altogether over the last 15 years.


June 2, 2007 10:56 AM

After leaving my previous post, I went to another blog who was discussing this very subject, it is worth checking out....Nouriel Roubini's Blog. I don't intend for you to post this, but please go and check it out. Between the two blogs, you guys are all doing some great reporting on our economic conundrums that probably should not be happening today.


June 2, 2007 11:06 AM

Hi it is me again for the last time. The article on Roubini's blog that I referred to in an earlier post is "157K job growth and other BED-time fairy tales…" on It is under his blog section on the web site.


June 3, 2007 12:25 PM

I think a large part of it is these are contractors rather than employees so are never employed or unemployed but only have work or don't.

David Baker

June 5, 2007 1:48 AM

Lord has it right I have worked construction in the past and contractors work or they don't. The money is good while it lasts but when the works gone you better have saved because there is no unemployment. This will lead to the next great depression coming to this country probably Q4 this year or Q1 next. What will we do to keep all these people working. You only need so much road when nobody has a job to drive to.

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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