Housing Continues to Contribute to Economic Woes

The housing contraction has continued unabated, laying heavy hits on both GDP and the labor market says the National Association of Home Builders. The housing production component of GDP ¯ residential fixed investment ¯ contracted at a 26.7-percent annual rate in the first quarter and lopped 1.23 percentage points off the GDP growth rate, essentially the same as the dismal performance in the final quarter of 2007.

Employment in residential construction ¯ builders and specialty trade contractors ¯ continued to move downward through April, recording a loss of 33,100 jobs for the month and a cumulative loss of 477,900 jobs from the peak in early 2006.

Downward momentum in home sales and housing starts guarantees another heavy hit to GDP from residential fixed investment in the second quarter of this year, and we now expect a substantial drag on growth to persist through the first quarter of 2009. Employment in residential construction inevitably will decline throughout 2008 and during part of 2009.