Something is wrong with construction

Changing sectoral trends in the last 6 decades, translated through the economy’s production network, have on net lowered trend GDP growth by around 2.3 percentage points.  The Construction sector, more than any other sector, stands out for its contribution to the trend decline in GDP growth over the post-war period, accounting for 30 percent of this decline.

That is from a new working paper by Andrew Foerster, Andreas Hornstein, Pierre-Daniel Sarte, and Mark W. Watson, “Aggregate Implications of Changing Sectoral Trends.

Kevin Erdmann, telephone!

Comments

We stopped building things a long time ago. Democrats went NIMBY, Republicans think it is a waste of money. How about we take some of that military spending and make some infrastructure?

a fall in labor force participation are the main culprits behind this weak recovery.

Advances in materials and equipment technology have dramatically lowered the number of workers needed on construction projects. Perhaps the J. M. Keynes Construction Company still uses an army of men with shovels to move dirt but everybody else is using Caterpillar 988 front-end loaders.

Plus downward wage pressure due to reliance upon undocumented laborers.

My understanding is that only a few specialties within construction really can make practical use of low-skill/undocumented laborers. Framing wood residential buildings, some excavation, clean-up, but none of the high-value trades.

Fair point. Maybe more in residential than commercial.

Definitely more in residential. Roofing would be another example where you can throw a guy on a shingle job but not on a commercial one.

Those "low skilled" illegal immigrants in the housing trades are actually quite skilled, albeit not school trained. With all due respect to carpenters, plumbers, and electricians, their jobs are difficult but not rocket science. Modern houses are almost prefabricated. There are very few decisions that need to be made. And most of their mistakes are covered up with drywall.

They start at the bottom and work their way up. Just like anyone else. Since the demanding positions take longer to learn, they also have more time to get their language skills up to par.

Obviously the increased supply of labor keeps wages down.

Recent HS graduates looking to get into the building trades have to compete with the illegals. Contractors now regularly pickup hourly illegals at the lumber yard as needed, pay them cash under the table, and don't even have to go through any ritual to lay them off. Contractors love it, but it's tough on any non college bound HS who wants to get into the trades. Nobody cares, these are the children of deplorables anyway. They can get a job at Walmart or, who cares? It's not like it affects anyone important.

Build the wall!

MAGA2020!

Caterpillar Loaders and Bobcats and other mechanical equipment have been in use for the last fifty years. Customer demand and building technology is very conservative, there is little new in the industry. And of course illiterate peones are useless.

A big difference from the not too distant past is the availability of knuckle-boom man lifts and scissor lifts that eliminate the construction of temporary scaffolding, and the men who put it up, for many jobs.

Why would you bother to build or improve existing construction when mortgage-driven QE will drive up your value regardless? No one wants to take on debt right now with all of the negative economic indicators.

Please provide list of negative economic indicators.

Bonds, earnings revisions, copper and lumber prices, and the fed looking to cut rates again despite the 'Trump boom.' Then you have the compounding risk indicators with true unemployment and private debt levels through the roof, which ensures when the levee breaks, it will break hard.

But that's missing the forest for the trees in the context of this article. The root of the problem is QE via mortgage-backed securities.

You seem not to understand what leading economic indicators are. Not one of those is considered one.

Exactly ONE Fed Governor suggested lowering rates. One. The Fed is not "looking to cut rates." He might be right, but he is distinctly in the minority.

What "true unemployment levels" are "through the roof?" U6 is at 7.1%, down from 8.1% at the beginning of 2019 and lower than the year ago rate of 7.7%. The historic low of U6 was 6.8% in Oct 2000.

We may very well be on the verge of recession but for NONE of the reasons you say. You're a frothing lunatic.

BC's feelings (nothing more than feelings) are more rational than Barack Hussein Obama saying he didn't have a magic wand, or sumpthin'.

Talking down the economy may work. Some of them believe they need a recession to derail Trump 2020.

You lot would be looking at this exact same economy and finding plenty of negative things to say about it. So it goes....

What makes you think we dont see bad things in the economy? I've predicted recession for two years, and I think none of that is Trump's fault. Today looks a lot like 2004. I merely said that all the indicators that BC is looking at are nonsense and he doesnt get his facts straight.

We are intellectually honest. Liberals are not. And Dick is absolutely correct about the Democrat propaganda machine trying to talk down the economy.

Is very big with you. The Republican propaganda machine does the same thing when it's their turn.

"Those guys are partisans, we are not partisans" LOL

No, there is no symmetry. We are not just as bad as them.

Leftists are molded and indoctrinated by tiresome propaganda memes without intellectual support. Conservatives dont have a version of Alinsky or Eisenstein.

Think of how the leftist version of Willitts would reply. Fish don't know they're wet, partisans don't know their partisan.

The question, sir, is not whether someone is partisan. The question is whether their politics are driven by facts, logic, and morality or whether one's facts, logic, and morality are dictated by one's politics.

There are few to no analogues to me on the left. Even Orwell recognized this.

I never even met you.

Of course there will be a recession, followed by a recovery, followed by a recession... ad infinitum.

There hasn't been any QE in the last 7 years. There were three distinct rounds over a four year period.

QE is just a wolf in sheep's clothing now, clothing made of student loans and mortgage-backed securities.

|> "The Construction sector, more than any other sector, stands out for its contribution to the trend decline in GDP growth"

nonsense -- there is no objective method to isolate/measure such an effect on GDP.
and GDP itself is already a highly nebulous concept/pseudo-metric.

even if this construction-sector-trend estimate is absolutely correct -- so what ??
who is going to act on this ivory-tower data and what would they do about it ?

Ed Leamer did a very good job of doing so. He found that durable goods, including housing, account for almost all of business cycles.

No one will act on it because politicians, from small towns to DC, benefit from artificially boosting the economy in the short run. We will continue to have these crises until we strip away their power to fuel them.

Maybe the American system is not that great after all.

Even in Brazil we have crazy people and I am one of them, proud to say!

He is not me. He is the impersonator.

And how can this be? For he is the Kwisatz Haderach!

No, he is not!

"Sustained contractions in growth specific to Construction, Nondurable Goods, and Professional and Business and Services make up close to sixty percent of the estimated trend decrease in GDP growth. "

This sounds suspiciously like Alex's relative performance (cost disease) argument.

You may be onto something, since construction is heavily reliant on services rather than capital. It also seems to undercut Erdmann's thesis that the real estate boom-bust was due to NIMBY, since this downward trend seems to be since post-WWII.

The situation is under control. The legitimate authorities are dealing with the situation according to the legal precedents. There is no unrest whatsoever. The Ministry of Justice and Public Safety has issued an offical release.

This is the impostor! Or is it? I'm so confused.

No, it is not. It's me.

Yes it is me.

I'm sick of both of you.

Ditto.

there will be no more stupidity
there will be no more mistakes
es un nuevo día.
Dios te ayude a todos

A realtor once said a fireman with four kids and one income had a four bedroom house built for $26,000 in 1960. A few miles down the road and two years earlier, Warren Buffet built his current home for $31,500.

Would a firemen with four kids and one income have a four bedroom home built today?

If the fireman had spent 20 years driving a truck for the army prior to becoming a fireman, yes.

Heres another one via Reason: $300k in one year.

https://reason.com/2018/05/21/firefighter-earned-300k-in-overtime-by-w/

Reply to MC: Perhaps we both find the top .01% incomes annoying. MAGA…America’s greatest generation taxed oligarch income at 94% on June 6, 1944.

My mom and dad bought their first house around that time. Their best friends lived across the street. Chemical Engineer and Northwest Orient ground crew. The homes were 3br ~1400 sq ft.

Fast forward...do airlines pay tgeir ground crews or are they contracted out? Does the guy who waves you into the gate live across the street from the engineer that just flew in from San Jose?

I think you are underestimating fireman pay and job stability.

Indeed. Here in CA there is ferocious competition for those jobs. Firefighters easily make 100k/yr or more, and the 3% at 50 defined benefit retirement is gold plated.

It's a good gig if you can get it.

Productivity is value-added (GDP) for the industry divided by hours worked in the industry.

Let us suppose we can measure the hours worked (although I have my doubts). The issue, then, is how well we are measuring real GDP in an industry.

Part of what GDP is quality. Workers aren't just making "stuff." The nature and quality of the stuff increases. Perhaps regulations are making costs bloated. But better quality stuff is an increase in real GDP. Only in the USSR was GDP measured by the ton.

Official measurements indicate declining productivity in construction. I don't believe it. The agencies are likely underestimating quality improvements, which results in lower GDP in construction and probably lower GDP in total.

Construction includes all commercial and offices spaces, and apartments as well as houses.

There was no housing shortage in 2006.

But the Republicans tell us that their tax cuts will generate a boom in business investments. Yet this post directly contradicts that claim.
Actually, it looks more and more like that every time we get a republican tax cut the long run growth rate of the economy slows
and business fixed investment as a share of GDP peaked under Jimmy Carter.

Anyone care to explain this apparent contradiction.

You'd have to detrend this and conduct an event study, but here you are. While not proving that the tax cut caused an increase in investment, the claim that investment fell as a result is soundly rejected.

https://fred.stlouisfed.org/series/W987RC1Q027SBEA#0

See that big spike in investment as a contributor to GDP? Any guesses what caused that?

https://fred.stlouisfed.org/series/EQUIPCONTRIBNOW

Mr. W, two trillion bucks for a blip? Seriously? Three Obama's blips easily beat one Trump blip. Going back to 1947, as a percent of GDP, investment has risen about 1.5% during the term of a democrat in the WH and fallen about 1.5% during the term with republicans in the WH.

https://fred.stlouisfed.org/series/A006RE1Q156NBEA

Thinking of the construction as a single industry is pretty reductive. There are virtually no practical connections between a single-family home builder in Arizona and a commercial general contractor working one state away in California. Within one market and sector, there are innumerable silos and moats for each design discipline and contracting specialty. Each building is a mix of commodities and specialized products unique to the time and place it was constructed. Regulations change between state and city. Even the developers and underwriters typically work within a limited domain. We don't have anything like a holistic approach to measuring the performance or impact of our buildings. Even if per-worker productivity did increase, the question "of what" is pretty well unaddressed.

In the rest of the developed world construction sector was automate. In the USA because it is prohibited to weld reinforcing steel, its all done by hand.

So in Europe, Singapore, Australia it takes 30 mins to make a 12m foundation cage on the machine. In the USA it takes 10 guys a whole day.

I am sure you would find everywhere in construction similar outdated regulations and business practices that maximise manual work by unionised workforce.

Based on previous posts,

These statistics provide a clear indication of the

Baumol effect.

End tax subsidies for housing, Donald Trump's palaces, and developers.

Cost disease via tax subsidy. A subsidy is a subsidy.

Speed limits.
Speed limits limit how far out from cities you can build, because people won't tolerate commutes longer than a certain amount. Which in turn means developers have started running out of land to build on around major metro areas. (Plus building restrictions meaning you can't build higher, making it difficult to tear down a rebuild.) So less construction.

Getting an early start on the margaritas this afternoon? Are you saying that if the speed limits were raised to, oh let's say 90 mph, that housing would be built for commutes of up to maybe 110 miles? Can't imaginative humans build satellite cities around the major metro areas? In fact, don't they already do so?

Have you heard of supercomputers?

One would think we would have become untethered from city centers, but things have not evolved that way.

Super-commuters.

Damned autocorrect.

Not just speed limits, but 21st century transportation infrastructure. You could raise the speed limit around Seattle to 1000 MPH and it wouldn’t improve traffic speed a whit. So they’re doubling down on building 19th century train systems.

1. Productivity improvements don't always show up in GDP. 2. We still have a construction overhang from the housing bubble in certain geographic areas. 3. Population growth is slow and millennials are buying their first homes at very advanced ages compared to previous generations. That's what's "wrong" with construction.

Fruits of unions that are really labor cartels.

Wasn't Lincoln a hero for "saving the Union"? Why is one union good but the other bad? Don't the "United" States operate in concert for mutual benefit? How would limp-wristed Connecticut or sissy Delaware continue to exist without being in union with macho Texas and brawny Nebraska? So it's only right that workers unite to protect their own interests from being gobbled up by the capitalists. Of course, public employee unions are a different story.

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