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Economy Not Expected to Recover While Construction Struggles

Depressed construction activity is expected to continue weighing down both housing and the larger economy, ""Freddie Mac"":http://www.freddiemac.com/ predicts in its latest ""Economic and Housing Outlook"":http://www.freddiemac.com/news/finance/docs/Oct_2013_public_outlook.pdf.


While rising mortgage rates and this month's federal budgetary debate are both having a cooling effect on the housing recovery, the company says a lack of inventory--in the face of heightened demand--is a bigger issue.

""Inventories remain tight at a 5 months' supply as of September due to negative equity, a declining supply of distressed sales, and a severely depressed level of new construction,"" Freddie Mac said in its outlook.

The company explained that in a normal environment, the economy should add around 1.7-1.8 million new housing units per year. With starts expected to grow by less than 1.0 million in 2013 and around 1.15 million in 2014, it will take some time before housing growth returns to normal levels.

At the same time, growth in the construction industry is also taking a toll on the economy. According to Freddie Mac, construction employment is 1-2 million below trend levels, which comes out to about one year of non-farm payroll growth at current levels. (September's Employment Situation report, released Tuesday by the Bureau of Labor Statistics, shows construction payrolls increasing by about 20,000 throughout the month.)

""Consequently, the unemployment rate remains elevated and economic growth lackluster,"" the company said. ""As residential construction gets unstuck, the economy should start to get moving. We are forecasting that the ramping up of residential construction will take a while, and while economic growth will improve over the next year, we won't see an economy operating at full potential until sometime after 2015.""


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