This is no country for old insomniacs. Like me.
On the one hand, I obsess irrationally over an East Coast-based major league baseball team on a grueling Pacific time-zone swing. On the other, I awaken in the wee pre-dawn hours in the clutches of a need-to-know fixation on the whipsawing Asian and European financial exchanges, fretting the havoc they may wreak on U.S. futures markets. Sleep--at least at night, when it's the normal thing to do--stands little chance against such a constant rush of nervous adrenaline.
The "R" vigil is on.
Confidence--among business strategists, investors, builders, and consumers--is in flux, and it all seems to be politically in play. Bond markets are a big wall of worry, while consumer retail markets paint a rosy picture of a humming economy still building steam. The media and an exhaustively pummeling zig-zag news cycle now amount to so much involuntary muscle in the anatomy of the moment, amplifying, reinforcing, and ultimately, self-fulfilling a prophecy toward a negative trajectory. For certain, the rate at which pundits, analysts, and correspondents are either calling for a downturn or seizing on signs of continued strength in the housing market is accelerating.
What these riptides of volatility, crosscurrents of uncertainty, and self-contradictory messages mean for housing, building, builders, and the money that flows into this business community have sparked debate about what's to come, when, and how disruptive it may be for builders.
This week, however, we need to take a hard look at one of the home building business's brightest silver linings, which, judging from this data, may be at risk of losing its luster.
As downward-headed mortgage interest rates tilt the market's playing field in builders' favor, the one rock-solid, build-as-many-as-you-can segment builders have continued to pour investment into and count on is the low-price tier--entry-level and first-time-buyer cohort-- in each market.
Attainably-priced new homes in markets far from the nation's land-constrained coastal regions seemed to be the single most reliable single-family, for-sale, new construction segment--one continuing to tap years of pent-up demand as well as a growing stream of new prospects whose jobs, incomes, college debt pay-downs, household formations, and family-forming trajectories are still tracking upward.
This National Association of Home Builders analysis of the Institute for Supply Management's Production Index, which zeroes in on the relationship between factory output key performance indicators and residential construction activity may be a sign of trouble to come in areas considered up to now to be reliably steady.
NAHB economist Litic Murali writes that one in 10 new single-family for-sale homes gets built in critical manufacturing-intensive counties, as well as 7% of multifamily construction. Murali explains:
"For 2016 and 2017, when the ISM Production Index was increasing, single-family construction growth rates in manufacturing areas were outpacing the rest of the nation. During this period, single-family construction was averaging an 11.7% annual growth rate in manufacturing areas, compared to less than nine percent growth for the rest of the U.S.
"A clear weakening was evident at the end of 2018. For the fourth quarter, the four-quarter average growth rate of single-family construction in manufacturing counties was only 0.5%, compared to 4.8% for the rest of the country. This growth rate then turned negative at the start of 2019. The second quarter data indicates a 3.8% four-quarter decline for manufacturing areas single-family construction, comparted to a 1.6% decline for the rest of the U.S.
"In manufacturing counties, apartment construction was declining at the start of 2016. However, with gains for manufacturing activity, apartment construction in manufacturing areas accelerated in the second quarter of 2017, reaching a four-quarter average expansion rate of 20.6% for the first quarter of 2018. However, following this quarter, apartment construction in manufacturing counties slowed over the remainder of the year. For the second quarter of 2019, the four-quarter growth rate of apartment construction in manufacturing counties was -4.1%, compared to a 0.4% gain for the rest of the nation.
"The recent trends of the HBGI data for manufacturing areas thus reflect the current cycle of manufacturing activity, with slowing global growth and recent concerns over trade issues. Home construction activity in manufacturing-intensive local markets was outpacing the rest of the nation in recent years, only to slow and turn negative in 2019."
At the same time, although the talk-track of technology-based capital investment and hiring has focused in recent years on heartland cities and counties, the data tell a different story. To cut to the chase, don't expect tech jobs and work centers to make up for continued deterioration in manufacturing-intensive economic activity. Here's a Brookings Institute analysis of the largely same-old-same-old geography of technology concentration of jobs and opportunity from Brookings fellows Mark Muro and Jacob Whiton.
Brookings content producers Fred Dews and Betsy Broaddus write:
Despite announcements from Amazon, Google, and Apple that the companies are adding high-level jobs outside traditional West Coast tech hubs, Mark Muro and Jacob Whiton find that only nine of the largest 100 metros in the United States significantly increased their share of tech jobs from 2015 to 2017. “These ‘winners’ of the last few years included San Francisco, Seattle, San Jose, Los Angeles, Austin, Denver, Orlando, Kansas City, and Charlotte,” the authors explain. “Another 60 cities actually lost share of the sector due to slow or negative growth … these new data on the geography of tech are disconcerting for those thinking the U.S. would do better with a more balanced economic map.”
Just another reason to white-knuckle through these tumultuous days and lose sleep at night. At least the Yankees are playing at home this weekend.