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Home Builders Face Labor Shortage Woes

The lack of workers with the necessary skills is hurting the construction industry.




Home Builders Face Labor Shortage Woes

In the last quarter of 2015, the findings of a survey by the Associated General Contractors of America already gave a preview of the labor shortage woes that home builders are currently facing. The survey revealed that nearly 80 percent of construction businesses were having a difficult time finding qualified skilled labor.

In fact, in “The construction labor shortage: Where did all the skilled labor go?” — an article published on the Tradesmen International website — it was pointed out that the current labor shortage actually began when the home construction industry bottomed out in 2011.

Long-Term Dilemma

“The shortage of skilled craft workers in the U.S.” — a research paper presented by the Construction Industry Institute (CII) — confirmed that labor shortage woes have persisted. The CII conceded, “Shortages of skilled craft workers continue to plague the construction industry. Employers have attempted to identify the root causes and to develop strategies to overcome these shortages. Despite this research and the efforts to stem the problem, the construction industry’s skilled worker pool continues to shrink.”

In a feature in The Wall Street Journal, Kris Hudson and Jeffrey Sparshott reported, “The delays, economists and builders said, could dent builders’ profits in the short term due to higher labor costs and concessions to buyers.”

They went on to cite the September 2015 survey of 74 builders by industry tracker John Burns Real Estate Consulting Inc.. which reported slowdowns as long as two months. Yes, home builders have had to wait that long for carpenters, drywall workers, foundation pourers, and housing construction specialists.

In November 2015, data from the Bureau of Labor Statistics and National Association of Home Builders (NAHB) revealed that there were 143,000 vacant construction positions all over the country.

The National Association of Home Builders (NAHB) is a trade association based in Washington, D.C. that aims to “enhance the climate for housing and the building industry.” It has more than 800 state and local associations under its fold and over 140,000 members.

At that time, the NAHB likewise revealed that 69 percent of its members “were experiencing delays in completing projects on time due to a shortage of qualified workers, while other jobs were lost altogether.”

Roots of the Problem

Industry experts have identified several factors that have consistently contributed to the labor shortage. They are the following:

1. The skilled workers may have quit the industry or relocated. The Bonded Builders Warranty Group cites a recurring trend: “A likely reason for the shortages and unfilled openings is that, during the downturn, many workers left the industry, developed new skills, and are not coming back. Other workers may have simply moved away and are not now living in the places where demand for new housing is recovering at the fastest pace.” Moreover, NAHB chief economist David Crowe also revealed in a November 2015 Builder feature: “The Census Bureau recently published a report utilizing detailed employment records over the past 15 years. About 60 percent of former construction workers either went to some other industry or remain unemployed. Only 40 percent returned to construction after the bust.”

2. There’s no new blood. Most high schools have stopped holding shop classes. More and more high school graduates have also opted to pursue four-year college degrees. They eventually seek white-collar jobs. As the CII observed: “The journeyman-level work force is as educated as the rest of the U.S. population.” The group likewise added that “the construction work force is failing to attract women and minorities.”

3. They wages are not attractive. “Construction pay scales have not kept their relatively high position over the bust and start of the recovery,” Crowe noted. This, of course, puts off skilled workers just as it would put off other workers in different industries.
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Building Solutions

With the main factors causing the labor shortage identified, experts have come up with strategies to address the problem.

1. Employers have to actively look for talent or get creative. One of the key strategies highlighted in High Skills, High Wages 2008-2018: Washington’s Strategic Plan for Workforce Development, involves education. The paper noted: “As education resources tighten, it’s essential that post-high school programs continue to focus on high employer demand fields — that is, fields of learning where employer demand for people with a certain level of education exceeds the supply of graduates coming out of state colleges, universities, and apprenticeships.” That means companies may have to recruit potential workers way before they enter the workforce. Other home builders could take their cue from Doug French, CEO of Texas-based Stylecraft Builders, who forged a relationship with a truss factory owner. As Les Shaver documented in the article, “Builders get creative to crack the Labor Code,” French offered “to buy the trusses if the factory produced and installed them turnkey.” Fortunately, the factory owner agreed. Thus, French suddenly doubled his framing capacity.

2. Employers have to plot out a career path for skilled workers. CII asserted, “The construction work force can be characterized as two divergent work forces: one that is satisfied with the work and is willing to participate and improve skill levels; and a second that is transient, unsatisfied, and will quickly leave the industry when other opportunities arise. These two work forces have vastly different characteristics and need to be managed accordingly, thus there is a need for two different work force management strategies.” They have to know that they have a future in the industry and that that they can update their skill set accordingly.

3. The wages have to go up. Employers have to pay more to attract and keep more workers in the industry. As Heidi Shierholz of the Economic Policy Institute explained, “If skills are in short supply, the simple logic of supply and demand implies wages should be increasing substantially in occupations where there is a shortage of skilled labor. In other words, employers who face shortages of suitable, interested workers should be responding by bidding up wages to attract the workers they need.”

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Next Wave of Stimulus Could Be $2 Trillion Infrastructure Bill




Next Wave of Stimulus Could Be $2 Trillion Infrastructure Bill

“Phase 4” of the government’s economic stimulus plan could include spending up to $2 trillion on improving America’s infrastructure.

The bill already has bipartisan support, and could be voted on as soon as April 20th when representatives of both the House and Senate return to Washington, D.C.

During his 2016 campaign, President Trump said he would make improving America’s roads, bridges and airports a top priority during his time in office.

“The only one to fix the infrastructure of our country is me – roads, airports, bridges,” Trump tweeted on May 12, 2015. “I know how to build, [politicians] only know how to talk!”

While previous attempts to pass a major infrastructure bill have failed, both sides seem willing to try again in an effort to help America’s economy rebound from the coronavirus outbreak.

House Speaker Nancy Pelosi, who is often at odds with the President, said she is “pleased the president has returned to his interest” in the issue. She called an infrastructure proposal “essential because of the historic nature of the health and economic emergency that we are confronting.”

She added “I think we come back April 20, God willing and coronavirus willing, but shortly thereafter we should be able to move forward.”

The Democrat’s proposal is part of a five-year, $760 billion package that includes money for community health centers, improvements to drinking water systems, expanded access to broadband and upgrades to roads, bridges, railroads and public transit agencies.

The plan designated $329 billion for modernizing highways and improving road safety, including fixing 47,000 “structurally deficient” bridges and reducing carbon pollution. It also aimed to set aside $105 billion for transit agencies, $55 billion for rail investments such as Amtrak, $30 billion for airport improvements and $86 billion for expanding broadband access.

“I could provide the legislative language in very, very short order for this package. It’s the funding that’s been holding us up, and if the president insists on funding, then I believe that Senator McConnell and Leader McCarthy will move on this issue,” said Democratic Rep. Peter DeFazio of Oregon, who chairs the House Transportation and Infrastructure Committee.

During an appearance on CNBC yesterday, Treasury Secretary Steven Mnuchin said he is talking with Congress about a potential infrastructure bill.

“As you know, the president has been very interested in infrastructure. This goes back to the campaign: The president very much wants to rebuild the country. And with interest rates low, that’s something that’s very important to him.”

He added “We’ve been discussing this for the last year with the Democrats and the Republicans. And we’ll continue to have those conversations.”

Earlier this week President Donald Trump said he wants to spend $2 trillion on a massive infrastructure package.

He tweeted that “With interest rates for the United States being at ZERO,this is the time to do our decades long awaited Infrastructure Bill. It should be VERY BIG & BOLD, Two Trillion Dollars, and be focused solely on jobs and rebuilding the once great infrastructure of our Country! Phase 4.”

“The president very much wants to rebuild the country, and with interest rates low, that’s something that’s very important to him,” Treasury Secretary Mnuchin added.

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Stocks Will Head Lower, Warns Billionaire Bond Investor




Stocks Will Head Lower, Warns Billionaire Bond Investor

Billionaire bond investor and DoubleLine Capital founder Jeffrey Gundlach is the latest Wall Street veteran to warn that the worst is yet to come for stock prices.

He joins famed investor Jim Rogers, who said on Tuesday that he expects the market to stay elevated for a while, but ultimately another stock market route is on the way.

“I expect in the next couple of years we’re going to have the worst bear market in my lifetime,” Rogers said in a phone interview.

Gundlach may not be as bearish as Rogers, but he did say earlier in March that there was a 90% chance the United States would enter a recession before the end of the year due to the effects of the coronavirus pandemic.

In the short-term Gundlach said during a webcast on Tuesday that he believes that the lows we saw in March will be eclipsed in April due to the uncertainty around the coronavirus outbreak and when we can expect the number of new cases to slow.

“I think we are going to get something that resembles that panicky feeling again during the month of April,” while adding “The low we hit in the middle of March, I would bet that low will get taken out.”

Mark Hackett, chief of investment research at Nationwide agrees with Gundlach and warns that there is compelling evidence that nearly every bear market has a few rallies before plunging lower.

“Last week’s double-digit gain for markets was a welcome relief rally, though market bottoms are rarely as clean as this one has been. In 2000/01, there were four rallies of greater than 20% before ultimately reaching a bottom, and in the financial crisis, the S&P 500 had a false breakout of 27% before hitting a bottom.”

Gundlach also said that any projections that the US economy will quickly recover once the spread of the virus slows were too optimistic and that the hopes of a quick recovery were causing the markets to act “somewhat dysfunctionally.”

“We will get back to a better place, but it’s just not going to bounce back in a V-shape back to January of 2020,” he said.

Gabriela Santos, JPMorgan’s global market strategist agrees with Gundlach that we aren’t going to get the quick “V-shaped” recovery that most are predicting.

She believes that we’ll start a slower “U-shaped” recovery once coronavirus infection rates peak.

“A ‘V-shape’ I think we should unfortunately discount at this point, because even when infection rates peak for COVID-19 around the world, what the China experience is teaching us is even though the government begins to relax some social distancing guidelines, individuals themselves are still very careful about how exactly they go back to their day to day lives,” she said.

“So demand was quick to shut down, but it’s actually much slower to come back online,” she added. “The better analogy here is a U. There’s a very sharp drop in activity in the first half, there’s a bit of a stall in the second, and then in 2021 is when that strong rebound begins.”

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Fed Bank Predicts 53 Million Americans Out of Work, 32% Unemployment Rate




Fed Bank Predicts 53 Million Americans Out of Work, 32% Unemployment Rate

As we covered here on The Capitalist last week, during an interview with Bloomberg News, Federal Reserve Bank of St. Louis President James Bullard said that he is forecasting the U.S. unemployment rate will hit 30% in the coming months as the coronavirus pandemic continues.

The comments understandably raised a few eyebrows at the thought of such a staggering unemployment rate, which would be nearly triple what we experienced during the Great Recession.

Bullard tried to soften the blow in a later interview with CNBC, stating that although the unemployment number will be “unparalleled” we shouldn’t get discouraged.

“…if we play our cards right and keep everything intact, then everyone will go back to work and everything will be fine.”

Now, one of Bullard’s colleagues at the St. Louis Fed has an even more dour prediction about what America will face in the coming months.

In a research paper published last week, Miguel Faria-e-Castro, an economist at the St. Louis Fed, titled his article “Back-of-the-Envelope Estimates of Next Quarter’s Unemployment Rate” and estimated (remember, this is one man’s estimates) that nearly 53 million Americans could find themselves unemployed due to the coronavirus.

That works out to an unemployment rate of 32.1%. At the peak of the Great Depression nearly 100 years ago the unemployment rate topped out at 24.9%.

Faria-e-Castro acknowledges that it’s a massive number, and states “These are very large numbers by historical standards, but this is a rather unique shock that is unlike any other experienced by the U.S. economy in the last 100 years.”

He points to previous research that identifies 66.8 million workers who are in “occupations with high risk of layoff” that include sales, production, food preparation and services. He then looks at additional research that found 27.3 million workers in “high contact-intensive” jobs at risk such as barbers, stylists, airline attendants and food and beverage services.

Faria-e-Castro then averages those two numbers and adds in the existing number of unemployed Americans to arrive at his estimate.

While we are nowhere near reaching that unimaginable number, we are at the very beginning of a massive wave of initial jobless claims filings.

Just last week initial jobless claims hit a record of 3.3 million and another 2.65 million are expected to join them this week, according to economists surveyed by Dow Jones.

Some are even more pessimistic.

Thomas Costerg at Pictet Wealth Management has the highest estimate at 6.5 million, while Goldman Sachs estimates 5.25 million and Citigroup is at 4 million.

Moody’s Analytics predicts that initial unemployment claims from last week, which will be announced Thursday, could reach 4.5 million.

“COVID-19 has caused unemployment to surge and we look for U.S. initial claims for unemployment insurance benefits this week to total 4.5 million, compared with the 3.283 million in the week ended March 21,” Moody’s Chief Economist Mark Zandi said in a statement.

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