Multiplier Effect of Each Dollar Spent on Housing
The Liscio Report, via Barron's Alan Abelson, notes the multiplier effect of each dollar spent on Housing.
"We'll spare your having to listen again to the litany of woes that are likely to issue from the great housing boom turned bust. Suffice it to say that it's destined to wreak serious damage on the consumer's will and wherewithal to spend, which has been the great enabler of economic growth, not only for this fair land but just about the whole planet.
If the consumer, with his income badly lagging while he must contend with unprecedented high oil prices and rising inflation generally, is effectively deprived of the enormous spring of cash and credit that his house has dependably provided for so many years now -- the golden crutch, as it were -- he'll have little alternative but to spend less and save more. Nor, in our view, is this saturnine prospect diminished one whit by July's brisk retail sales, which owed everything to freakish hot weather that touched off a run on summer apparel, air conditioners and kindred beat-the-heat stuff, along with the last gasp of auto incentives that produced a blip in car sales.
The powerful impact the great boom in housing has had on the economy -- and a measure of how much growth overall will suffer from the end of that boom -- is furnished by our friends at the Liscio Report. Each dollar spent on residential construction, they observe, generates $1.27 in additional economic activity. That's topped only by manufacturing ($1.37) and handily bests the contribution of health care (54 cents to 81 cents, depending on which part of that amorphous field you're talking about), retail (57 cents) and finance (53 cents).
Not only, as the Report comments, has "the kick from housing...been enormously important in recent years," as those numbers make emphatically clear, but the actual effect has been far greater since that $1.27 of additional economic thrust doesn't include the hardly inconsequential economic stimulus of remodeling or mortgage-equity withdrawal.
Housing's fade seems destined to hurt all the more since nothing else -- not capital spending or government largess -- seems primed to take up the slack."
I find it hard to imagine how a soft landing can be engineered from the Housing Slowdown -- short of rapid Fed cuts . . .
>
Source:
The Peroxide Plot
ALAN ABELSON
UP AND DOWN WALL STREET
Barron's MONDAY, AUGUST 14, 2006
http://online.barrons.com/article/SB115533771724333803.html
Saturday, August 12, 2006 | 07:34 AM | Permalink
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Comments
YO Ben, better start your helicopter!
Posted by: inflation | Aug 12, 2006 8:05:06 AM
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