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Construction and Curves - August 21, 2018

Construction Pain

In addition to updating their Charts of National Economic Indicators yesterday, the Richmond Fed recently published its Regional View podcast from a presentation to a construction materials supplier. In the audio file, Director of Regional Economics Sonya Waddell discusses construction, saying,

 “Not the United States, or the Fifth District, or Maryland, none of them have reached the employment levels in construction that they were at in December of 2007.”

While Waddell also highlighted “momentum” in the construction labor market, a previous Regional View podcast focusing on the opioid epidemic, may have unknowingly addressed one of the headwinds facing construction. As reported in a recent Massachusetts Department of Public Health study, and covered by the Boston Globe, frequent injuries are often forcing workers to take painkillers to “keep working at jobs they would otherwise lose.”

Additionally, though not mentioned in the audio snippet, the PDF of the most recent Regional View shows that Residential Fixed Investment is declining at a SAAR of 1.1%. While that’s nowhere near the 20+% drops seen during 2008 and 2009, it is something we are cognizant of given the dynamics discussed in Edward Leamer’s paper from the Fed’s 2007 Jackson Hole conference, which we featured in an earlier TFTD.

Worrisome Curves

While interest rates may be worrying the housing market and affecting affordability, as covered in last week’s TFTD, the yield curve is also agitating the Fed. On Monday, Atlanta Fed President Bostic, who is a voter in the FOMC this year, said in response to a question,

 “I pledge to you I will not vote for anything that will knowingly invert the curve and I am hopeful that as we move forward I won’t be faced with that,”

And Dallas Fed President Kapan wrote in an essay, released today, that,

“Overall, the shape of the curve suggests to me we are “late” in the economic cycle. I do not discount the significance of an inverted yield curve—I believe it is worth paying attention to given the high historical correlation between inversions and recession.”

With the Fed bigwigs meeting in Jackson Hole this week, we will see if the fear of inversion makes further appearances in the presentations and discussions.