Don't get house-terical

Oct. 1, 2006
Some commentators are getting close to hysteria over the alleged collapse of the housing market, asserting that a contraction in home building and sales will trigger recession.

Some commentators are getting close to hysteria over the alleged collapse of the housing market, asserting that a contraction in home building and sales will trigger recession. Fortunately, trucking executives need not get house-terical: There should still be plenty of loads to haul in many regions of the country.

True, there was plenty of bad news to feed the bears. In just the first eight days of September, the following reports came out:

  • Several publicly traded home builders cut their estimates of future construction by as much as 50%.

  • The National Association of Realtors said July's pending existing home sales dropped 7%, seasonally adjusted, from June and 16% from July 2005.

  • The Federal Reserve, in its “Beige Book” roundup, stated, “Virtually all Districts reported declines in home sales, as well as in residential construction activity.”

  • The Census Bureau reported that private residential construction spending fell 2% from June to July, seasonally adjusted, while McGraw-Hill Construction said that the value of new residential construction contracts slid 7%.

  • The Office of Federal Housing Enterprise Oversight (OFHEO) and Freddie Mac reported that the rate of appreciation on houses sold or refinanced in the second quarter of 2006 slowed to 1.2% from 2.2% in the first quarter.

Okay, so where's the basis for optimism? First, most of the economy outside of housing is still healthy. The Bureau of Labor Statistics reported that the unemployment rate in August improved to 4.7%, seasonally adjusted, from 4.8% in July. The Bureau of Economic Analysis upped its estimate of second-quarter growth in GDP to 2.9%, from an advance estimate of 2.4%. The Beige Book said the economy kept growing in July and August; in particular, “Manufacturing activity continued to expand in all Districts…” The Census and McGraw-Hill Construction reports both showed nonresidential construction rising at double-digit rates year-to-date for the first seven months of 2006 compared to 2005.

Even the housing market has a number of bright spots. Census said spending on multifamily construction year-to-date was an impressive 20% higher than in January-July 2005. The Beige Book reported that the districts headquartered in “New York and Chicago both indicate fairly strong demand for apartment rentals since the last report, while Dallas noted continued strong demand for condominiums.” And OFHEO and Freddie Mac each showed house price appreciation had increased from the first to the second quarter in 15 states, and was virtually unchanged in several more.

Carrier executives who depend on manufacturing (other than housing or auto), on nonresidential construction or on the service sector should have no reason to become despondent. Even carriers that serve residential construction or the businesses that supply residents should find that their market is not collapsing, but instead is shifting — from sales to rentals and from contracting regions to ones gaining momentum.

YOUR TURN

This is my 100th column for Fleet Owner, which seems like a good excuse for taking stock. For more than eight years, I've looked for developments in the economic and regulatory environment that might affect fleets' costs or profitability. I'd like to know whether you've found the information on the mark or useful, how to make the column more relevant, and whether you have any suggestions for topics. Write to me at [email protected].

About the Author

KEN SIMONSON e-mail: [email protected]

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