Data I look at do not support Mr. Hatzius' argument. Homebuilders have been laying off workers. If you look at employment in S&1500 Homebuilders (BZH, CHB, CTX, DHI, HOV, KBH, LEN, MDCj, MHO, MTH, NVR, PHM, RYL, SKY, SPF, TOL), they have declined in 2006, to 78,000 from 104,000, a whopping 25% decline (first chart). If you look at the data for the broad construction industry, all the available sources - BLS (second chart), Manpower Survey (third chart), Challenger Survey (fourth chart) - show dismal trends in construction employment. What is interesting however is that the woes in construction sector have not permeated into the broader economy. Private payroll growth in the non-construction sector is ok; hiring is fine; and layoffs are actually trending lower.
Prof Roubini's argument about undocumented workers can cut both ways, so net-net it should have no impact. If undocumented workers were not recorded in the current construction employment slowdown, I bet they were not recorded during the boom time either. The anecdotes from the New York Times article are just anecdotes.
So what's my point? My point is that unlike Messrs Roubini & Hatzius, I believe that the problems in the residential housing sector are well-established by the data. That should not be the debate. The debate should be whether that problem is going to spread to the rest of the economy and when. Of course there are people on both sides of the fence. Homebuilders' stock prices seem to suggest that the worst is over for housing but there are others who think that "we ain't seen nothing yet" by pointing out to the housing inventory data. My gut feeling based on variety of housing data is that housing has bottomed and will start to become less of an issue past the summer. Of course, I could be dead wrong. The current slump could persist for another 6-9 months prompting consumers to curtail their holiday spending, and that’ll be the end of the current cycle.
