Spring's Softening Employment Picture Hurt Remodeling Outlook

By: Jann Swanson

The National Association of Homebuilders (NAHB) said today that their Remodeling Marketing Index (RMI) had slipped in the second quarter, probably as a result of a softening labor market.  The Index, which is similar to NAHB's Builder Confidence Index, is compiled from a survey of NAHB remodelers in which they are asked to rate current activity and indicators of future activity like calls for bids.  The Index dropped from 47 to 45 in the second quarter.  The Index had twice reached 48 last year, the highest readings since 2006

In the second quarter, the RMI component measuring current market conditions dropped to 46 from 49 and the component measuring future indicators of remodeling business remained unchanged at 44.  Any score below 50 indicates that more remodelers gauge activity as lower compared to the prior quarter than report it higher. 

"Remodelers have some backlog of jobs and along with higher quality leads, this is making them cautiously optimistic about the near future," said NAHB Remodelers Chairman George "Geep" Moore Jr.  "The positive outlook is constrained by continuing credit constraints and inaccurate appraisals that make customer financing difficult for big jobs like additions and whole house remodels."

In the South, the RMI rose by one point to 47, while in the West it was flat at 47. The Northeast and Midwest regions fell by six points and four points, down to 42 and 46, respectively.

NAHB said two important indicators of future activity rose in the second quarter.  The backlog of jobs went to 46 from 43 and the amount of work committed for the next three months increased to 43 from 42.  All current market indicators were down including major additions and alterations to 42 (from 44), minor additions and alterations to 47 (from 52) and maintenance and repairs to 50 (from 51).

NAHB Chief Economist David Crowe said the weak labor market in the spring hurt consumer confidence and likely explains some of the temporary signs of weakness in the construction industry during the second quarter including the two point decline in the RMI.  "The relative strength of the RMI components for jobs in the pipeline is consistent with the modest increase in remodeling activity NAHB is forecasting for the balance of 2012."