From: lessgovt@gmail.com   
      
   The Building Boom Is Prolonging Market Pain   
   By Ryan Dezember and Will Parker, April 30, 2023, WSJ   
      
   The building boom has helped push unemployment to around its lowest level in   
   more than 50 years. That is perplexing investors who want to see the Federal   
   Reserve switch course on interest rates.   
      
   Construction spending and employment have risen to new records this year,   
   boosted by government outlays for infrastructure, a domestic manufacturing   
   renaissance and a wave of apartment building that got off to a slow start   
   during the pandemic when prices    
   for building materials, such as lumber, were sky high.    
      
   Construction companies with jobs ranging from airport overhauls to bathroom   
   renovations say they have enough work booked to maintain payrolls—for years   
   in some cases. Even home builders, who slowed down last year when rates began   
   to rise, are ramping    
   up into spring.   
      
   The persistent strength in a sector that is usually among the first to suffer   
   job loss when borrowing costs rise is undermining investor hopes that the   
   Fed’s aggressive interest-rate increases would quickly slow inflation and   
   rejuvenate the stock    
   market.   
      
   It also threatens to upend bets in the market that recession and lower rates   
   are on the horizon. Investors are trading government bonds as if rate cuts   
   will come within the next year and buying technology stocks, bitcoin and other   
   speculative assets that    
   surged when borrowing costs were near zero.   
      
   The issue for investors is that the longer it takes for construction activity   
   and employment to decline, the longer it will be before the central bank can   
   cut rates.   
      
   “Through this whole cycle, many have expected a much faster slowdown than   
   has occurred,” said Bob Elliott, co-founder and chief executive of asset   
   manager Unlimited. “Macroeconomic cycles take years to play out.”    
      
   There are signs of slowdown, to be sure. Apartment construction is expected to   
   decline once the latest batch of buildings is finished. Problems at regional   
   banks are drying up financing for some projects. Spending on home improvement   
   and repairs is    
   forecast to decline over the next year, the first contraction since the depths   
   of the foreclosure crisis in 2010, according to a closely watched barometer of   
   the remodeling industry.   
      
   “Maybe we’re starting to see the effects of higher cost of capital on   
   interest-rate-sensitive sectors,” said Anirban Basu, chief economist at   
   trade group Associated Builders and Contractors, which said its measure of   
   construction backlog declined    
   in March to the lowest level since August. “The Federal Reserve raises rates   
   until something breaks and something is starting to break.”   
      
   Even when construction employment declines, the effects might not be felt   
   immediately in the broader economy. During the relatively fast-crashing 2008   
   financial crisis, the number of people working in residential construction   
   peaked in April 2006 and had    
   fallen roughly 15% before overall employment began to drop about two years   
   later, Bureau of Labor Statistics data show.     
      
   The 2008 crash kicked off a deep recession and a yearslong home-building slump   
   that left the U.S. severely short of housing.   
      
   Meanwhile, millions of homeowners are locked into historically low mortgage   
   rates, which is keeping existing homes off the market and stoking demand for   
   new construction, builders and analysts say. New-home sales climbed 9.6% in   
   March, the Census Bureau    
   said.   
      
   PulteGroup Inc., the country’s third-largest home builder, Tuesday reported   
   record first-quarter revenue after selling 6% more houses at a 9% higher   
   average price than a year earlier. Executives said they are adding sales and   
   construction staff and    
   building more spec homes, especially those aimed at first-time buyers.    
      
   “They don’t have a home to sell. And so they are not hampered by the low   
   interest rate,” said Chief Executive Ryan Marshall. Pulte’s shares are up   
   47% this year and among the leaders of the S&P 500 stock index, which has   
   gained 8.6%.   
      
   Employment in residential construction has been buoyed by the biggest burst in   
   apartment building since the mid-1980s. Apartment projects were delayed after   
   the Covid lockdown because of the budget-straining expense of building   
   materials, such as lumber,    
   which shot to more than twice the prepandemic high and added millions of   
   dollars to construction costs.    
      
   “People couldn’t build their projects, so they kicked the can down the   
   road,” said Ivan Kaufman, chairman and CEO of Arbor Realty Trust Inc., which   
   lends to landlords.   
      
   Though prices for lumber and other materials have come down, developers now   
   face construction financing that is about twice as expensive as it had been   
   and landlords are unlikely to be able to offset greater borrowing costs with   
   rent increases, which    
   should hinder new projects, said Mr. Kaufman.   
      
   So far, the roughly $50 billion decline in residential construction spending   
   over the past year has been more than made up for by gains in commercial   
   projects, including highways, hotels and hospitals. A record $108 billion was   
   spent building factories    
   last year, and the amount has risen this year, to a seasonally adjusted   
   annualized rate of about $141 billion in February, according to Census Bureau   
   data.   
      
   Some, such as those in fields that the Biden administration has made national   
   priorities, such as semiconductors and electric vehicles, are supported by   
   government incentives. Others are being built by big companies that can fund   
   projects without    
   borrowing.    
      
   Graphic Packaging Holding Co. is building a plant in Waco, Texas, to recycle   
   old cardboard into new paperboard and said it would cover the $1 billion cost   
   with cash over three years of construction. A similar facility that Graphic   
   completed last year in    
   Kalamazoo, Mich., required as many as 1,200 workers from 38 states.   
      
   The 2021 infrastructure bill and last years’ climate, tax and healthcare law   
   are pumping money into industrial projects—such as renewable-energy   
   facilities and railroad expansions—that promise to keep workers busy for   
   years.    
      
      
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