Mohawk and Shaw Industries are among the biggest names in floor covering with headquarters operations there. When times are right, the industry employs about 30,000 people in Whitfield and Murray Counties in Georgia.

But times aren’t right. In the latest Bureau of Labor Statistics unemployment data for metro areas released last week, Dalton, Ga., stands out … in a bad way.

In the 12 months since July 2008, Dalton’s rising tide of unemployed swelled by 3,500 workers. That’s not where its real point of distinction lies, however.  It is its percentage unemployed that is an eye-catching 13.2%, which is well above the state of Georgia’s 10.4%, which itself is higher than the national average of 9.7% unemployment. 

In January, Dalton’s The Daily Citizen reported:

North Georgia is reeling from the slumping floor covering industry. The housing market, which has slowed significantly in both new construction and existing sales, has also hurt floor covering sales. Although the cost of oil has dropped recently, high raw material costs are affecting companies. Those combined factors have led to job losses and cuts in workers’ hours.

Some estimate that for every new home built, it takes 276 jobs in businesses ranging from carpets, to carpenters, to copper manufacturing, to tree nursery workers. Too, word is that for every dollar spent on direct costs of a new home, seven additional dollars go into the economy on consumer and commercial spending. The BLS notes that the economy has shed 7.4 million jobs since the start of the recession–1.4 million of them in “construction,” many more of them in “construction-related” manufacturing and services.

Click image for Isakson Web site.

In early September–as members of both houses of the United States Congress returned from a late-summer recess to address some of the most profoundly transformative policy issues the nation has faced since the period of Reconstruction following the War Between the States–Republican Senator Johnny Isakson puts it even more bluntly than the Dalton Daily Citizen.

“The carpet mills are basically shut down,” says Isakson as he calls to mind a lurid example of the collateral damage perpetrated by a housing crisis that’s rounding the bend into its third painful year.

“No other industry has so many businesses built on top of it as housing does,” says the 64-year-old freshman senator, who was for decades prior a residential real estate maven in the Atlanta area.  Isakson since early Spring of 2008 has doggedly pursued legislation that would extend buyers of all incomes a $15,000 tax credit on the purchase of any primary residence, a program that would run 12 months from its start. “We’re 20-some months into the worst housing economy we’ve had in our lifetimes,” says the Senator. “That’s how long I’ve been working on this legislation, and i just don’t think we’re going to come out of the broader downturn without housing getting fixed.”

• See this story from Big Builder editor Sarah Yaussi on calculating the cost of extending the current $8,000 first time home buyer tax credit into 2010.
• See this note on the multitude of tax credit measures under consideration in Congress.

His most recent play came in July, as Congress put its finishing touches on the Cash for Clunkers new car stimulus program.

“We reintroduced the bill as an amendment to the CARS legislation, and it won support from both the Senate Banking Committee chairman Christopher Dodd (D-Conn.) and the chairman of the Budget Committee Kent Conrad (D-N.D.), and that was an achievement,” says Isakson. The amendment, however, didn’t get enough support to go with the clunkers program, so it’s back to the political grind, operating face-to-face with his colleagues throughout Capitol Hill out of his first-floor digs in the Russell Building there.

“They know when they see me on the second floor what I’m coming to talk to them about,” he says unabashedly. “This issue links to all of the economic and social issues on our agenda right now.”

He says he’s going to keep at the legislative pursuit for as long as it takes. He imagines plenty of opportunities between now and the end of the year to get the bill included as an amendment to other taxation, budget, or finance legislation.

“Ideally, we’d love to see the bill come out of committee and win support by itself. The last thing we need right now is for November 31 to come and go, and then you slip in to the slowest period of the year for real estate in the months of December, January, and February. Without the catalyst of the tax credit, I’m afraid to imagine how bad things could get.”

Nevertheless, with the $8,000 credit that came into effect this year with the passage of the almost $800 billion stimulus package, he contends that the measure got it only part way right.

“The $8,000 program has proven that a stimulus will work to get home buyers off the sidelines and into the market, but what I’ve been saying all along is, we don’t have a first-time buyer housing recession, we have a move-up buyer recession. It’s those people who can’t sell their current home in this environment and move into more of the home of their dreams that have unfortunately caused such a slowdown in the entire economy.”

Isakson knows whereof he speaks. Selling homes is in his DNA. He’s the grandson of Swedish immigrant Andrew Isakson who by trade was a stone-mason and plumber, and who went into home building when he arrived on this side of the pond. Senator Isakson’s father Ed went into the real estate business as well, selling homes and commercial properties after first having spent time as a butcher.

In 1967, Isakson himself joined his father’s Northside Realty company. A consummate salesman’s personality blended with basic business instinct, and as a 33-year old, Isakson became president of the company.

Before he did that, though, came the deep recession of 1974, which featured a 36 month supply of homes for sale. Congress legislated a $2,000 credit for home buyers, and the effect was legendary. Many, including Isakson, believe that jolt to housing went far toward lifting the entire economy out of recession.

“He’s run a business, made a pay roll, paid health benefits for his employees, been there and done that,” says John Wieland, a long-time friend of the senator. “I can guess that the first time we met, it was probably about a commission that he didn’t get on the sale of one of our houses. Still, from the minute you meet Johnny, you get the feeling that ‘this is your kind of guy.’ He’s very approachable.”

Isakson, like 35 other senators, and 435 members of the House of Representatives, have a lot on their minds these days as they confront the issues of a continued challenge on the jobs and economics front, as well as health care reform, a transformative cap and trade energy bill, and financial services reform. Many of them can’t help but think of one thing in the back of their minds as they consider their positions on each of these huge issues: reelection.

Senate Majority leader Harry Reid (D-Nev.), who hails from another state decimated by housing’s convulsive trajectory, is also up for a difficult bid to reclaim his seat if things don’t improve on the jobs and real estate front. Through a spokesperson, Reid says, “We believe we can extend the current credit for first-time home buyers, and we need to do it by the end of the year.”

Although Isakson may not encounter serious opposition in his bid for a second term in the senate, his friend John Wieland thinks it would send the right message for home builders, manufacturers and real estate people to show financial support for Capitol Hill’s patron saint of home builders, as well as those other members of Congress who specifically support the housing industry and are seeking another term. 

Where ever each stands philosophically on free-trade vs. government stimulus policy, every one of them will have to account for his or her constituency’s jobs picture by the time Nov. 2, 2010 rolls around. Like as not, reelection and action on behalf of getting the economy rolling toward job creation are going to have more effect than meets the eye.

Lest you take an iota of encouragement out of any of the leading indicator metrics that have turned ever so slightly from horrific to merely very bad, Roubini’s queued up all the reasons down in the dumps is where to get comfy and stay awhile.

Here’s the latest post from New York University’s economics Prince of Global Gloom:

Raw figures on job losses, bad as they are, actually understate the weakness in world labor markets. If you include partially employed workers and discouraged workers who left the U.S. labor force, for example, the unemployment rate is already 16.5%; even temporary employment is sharply down. Monetary and fiscal stimulus in most countries has done little to slow down the rate of job losses as economies suffer from  problems of insolvency, not just illiquidity, and as the fiscal stimulus programs are too small and not labor intensive enough. As a result, total labor income – the product of jobs times hours worked times average hourly wages – has fallen dramatically.

 

Moreover, many employers, seeking to “share the pain” of the recession and slow down the rate of layoffs, are now asking workers to accept cuts in both hours and hourly wages. Thus, the total effect of the recession on labor income of jobs, hours and wage reductions is much larger.

 

Other indicators are suggesting a protracted period of job losses and a persistently high unemployment rate even after the recession is over. The average duration of unemployment is not at an all time high in the U.S. Many manufacturing sectors are on a secular decline (autos, etc.) and employers are shedding jobs on a permanent basis; employment in the previously bubbly sectors (housing and related housing/real estate services, banking and financial services) is falling sharply and will not recover for a long time.

One of the only good things that can come of this is, well, a bona fide new word in Merriam Webster’s dictionary… a transitive verb “to roubini” that can work in all tenses and voices.

We’d like suggestions from you on a precise definition of the word.

Hence: Resources for the Unemployed. It’s a list of 100 tips the likes of which most of us fooled ourselves into believing we’d never need.

Total job loss exceeded Wall Street economists’ estimates by 30% or so, and eclipsed revised May job losses by 45%.

Total unemployment is at 9.5%, a quarter-century record.

The jobs numbers for construction are mind-blowing. In a year, the official count on the unemployed in construction has risen by 816,000 jobs. Unemployment (officially) for construction has gone from 8.2% to 17.4% in 12 months. In 30 days, from May to June, construction lost 79,000 jobs.

Reports the New York Times:

The latest figures highlight a somber new reality for workers, economists said. As the recession enters its 20th month, private wages and salaries are falling, working hours are dwindling and more people are without work. In essence, economists say, months of deep, broad job losses are effectively making unemployment a way of life for millions.

The number of people who have been unemployed for more than 27 weeks has more than tripled since the recession began, to 4 million. The median time people go without a job has increased to nearly four months, from slightly more than two months at the outset of the recession in December 2007.

Job losses, and gains, lag the economy. It takes a pretty good economic lift to turn job loss rates into employment gains. Here’s the Wall Street Journal take:

When marginally attached and involuntary part-time workers are included, the rate of unemployed or underemployed workers hit 16.5% last month, up slightly from May.

The employment report is a sober reminder of the headwinds the U.S. faces even as other data suggest the recession may be nearing an end. The Institute for Supply Management manufacturing index increased in June from May, and though its level of 44.8 still signals a slight contraction in manufacturing, it is consistent with slight growth in the overall economy.

After plunging at rates near 6% at the end of 2008 and early 2009, at annual rates, economists think gross domestic product only fell around 1% or 2% in the second quarter, setting the stage for a resumption of tepid growth starting as soon as the current quarter.

Still, a jolt of consumption-driven adrenaline seems unlikely. Average hourly earnings were flat last month at $18.53. That was up just 2.7% from one year ago, a sign that inflation isn’t a risk for the Fed. However, stagnant wages could also weigh on consumer spending, especially with gasoline prices on the rise.

The pall of job loss, and continued threat to household income, opposes “Animal Spirits” collective behavior that could turn the Queen Mary 2 in the Upper Hudson River.

Policy needs to factor in real job loss numbers into its stimulus math, not hope. Clearly, the Wall Street consensus among economists is not the place to seek reality.

This would suggest that a positive outlook and a negative one are equally viable. So why not believe the more optimistic take?

Shiller is one of the smartest people today commenting on what makes the housing economy tick, and he’s the first to say he doesn’t know when it comes to predicting where it’s going to go. Mind his phrasing in an op-ed piece from the New York Times this past Saturday. He carefully uses the word “may” to say, “hey, it could go the other way, too.”

Even if there is a quick end to the recession, the housing market’s poor performance may linger. After the last home price boom, which ended about the time of the 1990-91 recession, home prices did not start moving upward, even incrementally, until 1997.

We’re ever concerned about predictions. We heard a lot of anecdotal good numbers for April, and have gotten word from a number of builders that May was just as good or even better. We heard of one home builder in the D.C. metro market who closed on 55 homes in May, a good 20% ahead of plan. In Phoenix, monthly sales in some communities are better than they’ve been dating back almost two years.

At the same time, the gathering financial storms of nonperforming commercial mortgage back securities and unrepayable credit card debt coupled with an expanding black hole of unemployment remain abstractions whose risks to forward planning may be too hard to calculate.

Have investors who’ve restored more than 40% of value to stocks from their low-point and gotten the Dow Jones in positive territory for the year factored in these forces already? Have government and Fed policies actually begun to find traction in the financial system that have started to slow the bleeding?

Here’s what we think. For most privately held home builders, especially the ones on life support who are one letter from the bank short of doom, there’s no gain whatsoever from a negative scenario. These companies are beyond scenarios altogether, and just pumping to get another sale done to keep working their way through their bank obligations for another month.

Housing prices–especially national ones–bear little relationship to the realities of these companies. They’re focused on the small ball. Build quick. Beat existing, distressed, and foreclosed properties to the punch somehow, and make it so that the monthly payments make sense to a home buyer exactly the way these companies’ own monthly payments to their lenders stay on course.

More macro financial shocks are coming. More job loss will put a drag on local economies. More household deleveraging will take money out of circulation as consumers curb their spending.

Even so, Shiller says, what happens time and time again in the history of economics is that people’s behavior frequently defies logical supply and demand behavior.

All of these people could be made to change their plans if a sharp improvement in the economy got their attention. The young couple could change their minds and decide to buy next year, and the elderly couple could decide to further postpone their selling. That would leave us with a buyer and no seller, providing an upward kick to the market price.

Can the 87% or more of people who may stay employed offset the negative feedback of those who’ll continue to swell the ranks of those involuntarily out of work during the next 12 months as the economy grapples for recovery?

Will those who are able to hang onto their jobs be confident enough in their income stability to strike while the pricing, interest rate, and Federal tax credit incentive irons are hot?

The expression one real estate/housing player uses to offer an answer to these questions is this: “You’ve got to fake it to make it.” There’s no upside to believing the downside outlook. 

For the moment, getting to ”the other side” of this mess means staying in business through tomorrow.

Housing leaders and housing-centric economists want to believe housing always leads the economy. Fix housing, they say, and you’re on your way to fixing the broader economy, because housing is an engine with a multiplier effect. Residential investment dollars–including construction costs for all kinds of housing–redouble and stream into many other markets and cause good things to happen in local, regional, and national economies.

This time though, a consensus is building that housing will not lead the way out of the downturn. Housing is not broken.  Creation of demand is. Look at the latest unemployment data. Now, look at how foreclosures are working, i.e. 54% of new foreclosures are prime fixed and adjustable rate mortgages from among the lowest risk borrowers, per this analysis by Calculated Risk.

How about this for an argument? Housing, not only will not lead an economic recovery, it should not. Business Week economist Mike Mandel makes a case that a housing snapback would drain needed investment from other industry and service sectors that would put a more solid structure–including healthcare, education, and manufacturing–under the economy.

Here’s a few-minute video from Mandel on his Fix Housing Later theory.

Clearly, a more normalized level of demand for housing–existing, new, for-sale, and for-rent–would shape itself around less cyclical job growth in non-housing industry arenas. Businesses that got burnt badly as they met hyperbolic, investor-driven demand. In a real sense, housing’s 15 year run before 2006 used up a couple of the wild cards that would have jump started the economy, and pulled forward buyers into homeownership that it would be nice to have in the demand pool right now.

So, even as new residential construction business executives begin to populate their sound bites these days with flashes of wishful thinking, practically the only silver lining in today’s new one-family home sales data is that builders knocked 12 days of inventory off the books, reducing the ready supply of new homes nationally by 13,000 to 297,000.

In some markets, like Phoenix, home builder and developer sentiment has shifted from “you-have-to-fake-it-to-make-it” to that of genuine excitement. “They’ve turned the lights back on” in the land acquisition conference rooms, according to an executive with ties to investor and home builder land transactions.

What’s selling will have to continue to compete with foreclosures, super affordable to migrate renters across into homeownership. No contingencies. No funny business on the mortgage–it’s either FHA qualified, or at least 20% down. Delinquencies and defaults will pile up among prime and Alt-A borrowers for months and months to come, thanks to an unemployment rate expected to grow into the double digits before it starts to ease back by the end of 2010.

Get stocks to start parking in a promise of future growth, and a real economy GDP to inch back from its deep 6 to something around 0 this year, and by golly, consumer sentiment will start a real recovery.

Meanwhile, another year of trying to figure out how to do things with less people than you really need. What we all need though is an economy that can sustainably grow again, not one heated back up by housing. Fix Demand First, housing later.

A whiff of less-bad news here and there has bred with it a subtle change of expectations on the part of some economists, if not the eventualities themselves.

Clearly, though, economists are best at using two words to begin talking about even their strongest convicitons. Those two words? “It depends.”

Here’s a roll-up of economists’ opinions from the Orange Country Register’s “Lansner on Real Estate” that limbs out the Silver Liners from the Doom and Gloomers as to when that most-coveted of pieces of bottom might be in view.

Optimists

Fed Chair Bernanke:

• The worst of the recession has passed: “We continue to expect economic activity to bottom out, then to turn up later this year.”

Mark Zandi, chief economist, Moody’s Ecomomy.com:

• U.S. home prices will reach bottom by the end of 2009.
• “Notwithstanding the intensifying economic gloom, the bottom of the housing downturn is within sight.”
• U.S. home prices will fall another 11 percent on average before stabilizing.
• The Case- Shiller home price index will fall 36 percent from its 2006 peak to the bottom this year.

UCLA Anderson Forecast:

• Housing market to stabilize in late 2009, and “when it does, the contraction in residential construction will, finally, after more than three years, cease to be a drag on the California economy.”
• “As the housing market has completed most of its required adjustment prior to the downturn in general economic activity, it will not be as much of a drag on the recovery as experienced in previous recessions.”
• Orange County: Home prices stabilizing in 2009 and starting to rise in 2010. But appreciation rates remain in the single digits and prices will still be at 2004 levels in 2013.
• “This could well be the worst post-WWII downturn yet.”
• “If there is any good news in the picture it is that the correction in the housing market is almost complete.”
• “We are due for significant increases in unemployment through the 2nd quarter of 2010.”
• “Continued job loss in California is going to lead to more foreclosures and more uncertainty about the ultimate bottom in housing prices.”

California Association of Realtors:

• Recessionary conditions through the first half of 2009, “before we begin to see a turnaround in the second half of next year.”
• Prices down 28.4%. That’s revised from an earlier projection that prices would drop just 6% this year.
• Sales up 25%. CAR forecasts that 550,000 homes will sell in 2009, pretty good considering that the state was down to 347,000 sales a year in 2007. That’s revised from an earlier projection of 445,000 home sales.
  

Pessimists

Michael Carney, director, Real Estate Research Council of Southern California, Cal Poly Pomona:

• “I don’t see home prices leveling off in 2010. … The real reason we’re not going to see a recovery: The financing is not coming back for at least 5 years.”

Richard Green, director, USC Lusk Center for Real Estate:

• “I’d say we’re at bottom if it weren’t for the fact that the jobs picture is so dim.” … (Thinks market will turn around in 2010.)

Stan Humphries, VP of data and analytics, Zillow:

• “I’m doubtful that we’ll see the bottom until 2010, and thereafter it’s increasingly clear that we’re likely to have a long bottom before we see meaningful recovery in home values.”

Construction Industry Research Board:

• 2009 is expected to be the worst year on record for new residential building permits.
• Just 63,400 units will be produced in 2009, down 3% from the 2008 record-low of 65,380 units.
• 2008 construction was 20% lower than the lowest point during either the 1980s or 1990s housing downturns.
• The low in the early ’90s recession was 84,656 units in ’93. The worst year during the early ’80s recession was 85,656 in 1982.

It’s high-quality, mostly move-up home building businesses are getting battered in some of the nation’s most brutal new-home markets; and on the building supply side, things just ain’t getting any easier. Word is the Seattle-based conglomerate has been nosing around in the financial markets for months now looking for partners or a buyer for its well-regarded home building operations.

Meanwhile, iLevel, a business whose design was practically set up for 2005-06-style capacity and velocity, is a big capability literally in search of a floor in the market. Here’s how ProSales editor Craig Webb queues up their predicament in his news flash about Weyerhaeuser’s shutting two more mills:

“Demand for wood products continues to decline due to a slowdown in the housing market,” Tom Gideon, executive vice president, Forest Products, said of the latest announcement, which will affect 307 employees. “Unfortunately, extraordinarily weak market conditions in the homebuilding industry require that we take decisive action.”

The car business and new residential construction business have two essential similarities these days. One is that nobody knows how many new ones of either we need to meet real demand. The other is that double-digit unemployment is virtually a lock if both industries stay in the tank.

“This crisis was triggered by foreclosures, and a lot of those were in a very small number of areas,” says William Lucy, a University of Virginia professor who has studied the link between lenders and faltering home loans. Banks spread the risk and “it became like a car with no reverse gear. Once it starts to go over the cliff, it’s gone.”

In other parts of the country, the foreclosure wave was barely a ripple — at least until it started swamping major banks that had invested heavily in mortgages. Banking giant Wachovia Corp., for example, was hammered after California and Florida customers of one mortgage firm it bought began defaulting at high rates. The risks of such lending were spread so broadly among financial institutions that, when the loans went bad, it drove the national credit crisis, says Christopher Mayer, who studies real estate at Columbia Business School.

Banks are at the nexus of the problem because their fully compromised investment in real estate has both a home mortgage and a commercial acquisition, construction and development dimension to the startling erosion of their capital base.

The weakening and ultimate failure of many banks burns housing on the non-for-sale side even though many of the multifamily for-rent companies interacting with lenders have maintained surer footing with their construction and development loans to date.

Multifamily Executive magazine senior editor Christopher Wood maps out two indirect but nasty impacts a pulverized lending and credit environment has on multifamily housing players in his article, “Bank Failures Expected to Continue: Multifamily is likely to suffer more indirect damage as financial stabilization efforts arrive too late to save lenders with high residential mortgage exposure.”

One indirect ramification is that–despite the fact that much of multifamily’s financing need is met from government sponsored entity and Wall Street funding–any curtailment in local bank funding pipelines through as a shrunken pool of capital to draw from. The other consequential effect of bank failures on multifamily is job loss, which whacks every part of every economy.

Here’s an excerpt from Wood’s analysis.

 

Matthew McManus: Click for access to bio. Note: No relation to Housingcrisis blog author.

“Notwithstanding those five- to 10-unit properties where a lot of local banks might have taken on deals, the vast majority of multifamily over the past 10 years has been financed through the agencies or through Wall Street,” says Matt McManus, chairman of NAI BlueStone Real Estate Capital, a Philadelphia-based commercial real estate investment banking and advisory firm that secures debt, mezzanine, equity, and sponsor equity financing for investors, operators, owners, and developers 

“I don’t think that there is enough exposure to banks that the number of banks that are failing are going to really have any impact to the multifamily industry,” McManus continues. “But indirectly, whatever bank goes under, there are a few less dollars that can be loaned out to job-creating vehicles.”

Regional unemployment figures catalyzed by bank failure are certain to hit multifamily operators already struggling with tough property fundamentals. “The broader impact is being felt very clearly in higher vacancy rates and falling rents,” says report author Anderson. “But the other 800-pound gorilla is what happens with commercial [and multifamily] real estate. So far, multifamily delinquencies and defaults have not been that bad, but they have spiked significantly upward. By our calculations, there is $210 million in multifamily mortgages coming due between now and 2011. Quite a bit of that will face some difficulty in getting funded, despite the activity of the GSEs.”

Indeed, McManus reports a wide disparity between Freddie Mac re-financing terms and what is readily available in the market for a Class A stabilized apartment property in Philadelphia. “We can’t find a bank that is within 80 percent of Freddie Mac’s proceeds,” McManus says. “That’s how conservative banks are being today. They underwrite to shorter amortizations, higher debt service ratios, and sometimes artificially high constants to make a 60 percent LTV-type loan versus a 75 percent or 80 percent LTV.”

The Wall Street Journal toplines the story this way.

Private sector jobs fell 697,000 in the U.S. in February, according to a national employment report published Wednesday by payroll giant Automatic Data Processing Inc. and consultancy Macroeconomic Advisers.

That’s higher than the 630,000 loss forecast in a Dow Jones Newswires survey, and would be the largest number of jobs lost in one month during this recession. The figure for January was revised to show 614,000 jobs lost, compared with the initial figure of 522,000.

Here’s CNBC’s report, with commentary from Joel Prakken, CEO of Macroeconomic Advisors, on ADP’s overshoot of economists’ expectations on job losses.

Trust Calculated Risk for a take that will provoke rabid agreement, disagreement, and rat-a-tat gleeful distemper among the blog’s loyal hord of Riskalantes.

Then, again, for even more relevant take-away on the more direct implications of ADP numbers have in residential construction, remodeling, design, and real estate sales, etc., have a look at a Mish’s Global Economic Trend Analysis post on the issue.

Since ADP dwells as a payroll services provider in the world of small to medium-sized businesses, Mish rightly points out the advantages and flaws of the data as a benchmark.

Medium sized businesses, defined as 50-499 employees are now leading the decline in jobs lost as of summer 2008. Small sized companies (1-49) employees were hanging very tough until July 2008. That is no longer the case.

What are most of the companies in the residential and light commercial real estate space? Small to medium sized companies. This is where there’s a lot of hurt going on in the housing crisis landscape.