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NOTE: Our November issue would normally be quarterly permit data for all U.S. markets through 3Q 2013. Due to the government shutdown, September and October data will be delayed until late November. Our Permits Edition will be coming in December.

By Greg Brooks. It may still be a half-fast recovery, but you have to admit it’s resilient. For a while, every month seemed to bring a new catastrophe that everyone was sure would trigger another recession. None of them—not natural disasters, oil spills, or even Congress—has been able to knock the economy off the rails.

At this point we’re reduced to agonizing over long-term bogey-men, and even that’s getting harder. Concerned about the national debt? The federal budget deficit fell 37% in FY 2013 (ended Sept. 30th) thanks to rising tax revenue and sequestration. If we can rein in health care costs, we’re on our way to a surplus.

Worried that our failed public school system is undermining competitiveness? In a newly-released international comparison of 8th graders’ science and math skills, 47 states outscored the average in science while 36 beat the average in math. Massachu-setts students are holding their own against perennial brainiacs in Finland and Singapore, and a dozen other states aren’t far behind.

THE SEVEN-YEAR ITCH

Continued on page 2

NOV 2013

2

But a new threat is on the horizon now and you’ll never in a million years guess what it is.

That’s right: homeownership. A new study by economists at Dartmouth College and the University of Warwick found “a strong statistical link between high levels of homeownership in a geo-graphic area and high later levels of joblessness in that area.”

Everyone knows homeowners are less mobile (i.e., they can’t move to take a job as easily as a renter). But homeownership ap-parently also increases commute costs (which reduces disposable income) and even discourages new business formation.

Says one author, “I am convinced that by boosting homeowner-ship, we have ruined our labor market.”

Worse yet, our poor labor market doesn’t even realize it’s ruined. In recent survey by the Demand Institute, 74% of renters said they want to own a home—and that number jumps to 79% among 18- to 34-year-olds.

So what can you do to prepare for this looming catastrophe?Best advice is to prepare a contingency plan to handle all the

new business you’ll have when renters finally get the credit and the down payments to become buyers.

Economists say the U.S. is on the verge of a breakout year when the forces driving the next boom—primarily oil and gas produc-tion, high-tech manufacturing, and world-class productivity—fi-nally reach critical mass. 2014 might be the year, but the Congres-sional Budget Office is betting on 2015: 6.4% projected growth followed by 6.6% in 2016.

Some people still worry that the Millennial generation (32 or younger) will be stuck in low-wage McJobs and buried in college debt, and will never buy homes. Two points:

First, wages are driven by supply and demand. When unem-ployment is high, employers have the upper hand and some take advantage of that. When unemployment falls, the situation flips and it’s payback time.

Second, while the average college debt may be over $26,000, the average is misleading. According to the Federal Reserve, nearly 40% of student loan balances are less than $10,000 and another 30% are under $25,000.

Millennials may be late to the party, but they are coming. When they do, you’re going to have a problem.

Right now housing starts are only about 40% of their previous peak, but that’s still 60% above the bottom. LBM dealers are hiring again, but cautiously. They’re also doing everything they can—in-cluding major investments in technology—to boost productivity so they can avoid hiring.

Forecasters are projecting another 25% to 30% increase next year. Maybe that’ll happen and maybe it won’t, but at some point, dealers will have to start hiring again.

The problem is that the pipeline is dry.When a downturn pushes starts below 75% of the previous peak,

it typically takes roughly 20 to 40 months to get back to that level. This time we’re 84 months in and still less than halfway back.

There’s no hard data and may never be, but recruiters say the industry has lost an entire generation of up-and-coming profes-sionals in their 20s and 30s who were laid off. They couldn’t wait

Continued from page 1

Continued on page 7

Number of months with housing starts at least 25% below previous peak Census Bureau

12 24 36 48 60 72

100%

75%

50%

25%

0%Months: 12 24 36 48 60 72

1990-92 21

1979-83 39

1973-77 41

2006-Current 84

U.S. actual and projected change in GDP, 1994 - 2033p Congressional Budget Office+8.0%

+6.0%

+4.0%

+2.0%

0%

-2.0%

-4.0%

1995 2000 2005 2010 2015 2020 2025 20302000 2005 2010 2015 2020 1995 2025 2030

3Q 2013 +2.8%

2016p +6.6%

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VITAL STATISTICS: ECONOMY

1Q 09 1Q 10 1Q 11 1Q 12 1Q 13 -10.0%

-7.5%

-5.0%

-2.5%

0.0%

2.5%

5.0%

U.S. REAL GDP, 4Q 2008 – 3Q 2013 (2009 $, billions) Bureau of Economic Analysis

U.S. ANNUALIZED CHANGE IN GDP, 4Q 2008 – 3Q 2013 Bureau of Economic Analysis

13,000.0

14,000.0

15,000.0

16,000.0

17,000.0

1Q 09 1Q 10 1Q 11 1Q 12 1Q 13 4Q 2008: $14,574.6 3Q 2013: $15,790.1 4Q 2008: -8.3% 3Q 2013: +2.8%

1Q 09 1Q 10 1Q 11 1Q 12 1Q 13

CANADA ANNUALIZED CHANGE IN REAL GDP, 3Q 2008 – 2Q 2013 Statistics Canada (expenditure-based)

U.S. INDUSTRIAL CAPACITY UTILIZED, Oct 2008 – Sep 2013 Federal Reserve

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

65.0%

70.0%

75.0%

80.0%

85.0%

2009 2010 2011 2012

Average since 1980: 79.5%

3Q 2008: +3.2% 2Q 2013: +2.2% Oct 2008: 74.8% Sep 2013: 78.3%

2009 2010 2011 2012 1Q 09 1Q 10 1Q 11 1Q 12 1Q 13 Large & medium banks: -18.1% Small banks: -10.0%

ISM PURCHASING MANAGER’S INDEX, Nov 2008 – Oct 2013 Institute for Supply Management (Over 50 = expansion, under 50 = contraction)

C&I LENDING: BANKS TIGHTENING STANDARDS, 4Q 2008 – 3Q 2013 Federal Reserve

30.0

40.0

50.0

60.0

70.0

-50%

-25%

0%

25%

50%

75%

100%

2013 Manufacturing: 56.4 Non-manufacturing: 54.4

2013

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VITAL STATISTICS: CONSUMERS U.S. MONTHLY CHANGE IN EMPLOYMENT (000), Oct 2010 – Sep 2013 Bureau of Labor Statistics

UNEMPLOYMENT RATE BY STATE/PROVINCE, Sep 2013 Bureau of Labor Statistics, Statistics Canada

-200

-100

0

100

200

300

400

2011 2012

10%+

9 – 9.9%

8 – 8.9%

7 – 7.9%

6 – 6.9%

5 – 5.9%

4 – 4.9%

< 4% U.S. : 7.3% 2013

Private: +212,000 Public: -8,000 Canada: 6.9%

1Q 12 1Q 10 1Q 08 1Q 06 1Q 04 12.0%

14.0%

16.0%

18.0%

20.0%

FINANCIAL OBLIGATIONS % OF DISPOSABLE INCOME, 3Q 2003 – 2Q 2013 Federal Reserve

YoY CHANGE IN UNEMPLOYMENT RATE BY STATE/PROVINCE, Sep 2012-13 Bureau of Labor Statistics, Statistics Canada

Homeowners only: 13.8% All households: 15.7%

1.0%+

0.5 – 0.9%

0.1 – 0.4%

No change

0.1 – 0.4%

0.5 – 0.9%

1.0 – 1.4%

1.5%+ U.S.: -0.5% Canada: -0.5%

1Q 12 1Q 10 1Q 08 1Q 06 1Q 04 95.000

97.500

100.000

102.500

105.000

50.0

60.0

70.0

80.0

90.0

INDEX, REAL HOURLY WAGES, AVERAGE HOURS WORKED, 3Q 2003 – 2Q 2013. Federal Reserve (Non-farm business, 1Q 2005 = 100)

UNIV. OF MICHIGAN CONSUMER SENTIMENT INDEX, Dec 2008 – Nov 2013 University of Michigan

2009 2010 2011 2012 Dec 2008: 60.1 Nov 2013: 72.0 Real wages: 100.400 Average hours: 101.644

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VITAL STATISTICS: REAL ESTATE

U.S. MEDIAN NEW AND EXISTING HOME PRICES, Oct 2004 – Sep 2013 Census Bureau, National Association of Realtors

2006-7 2008-9 2010-11 2012-13

Existing: $199,200 New: N/A

2004-5 $100,000

$150,000

$200,000

$250,000

$300,000

YoY CHANGE IN EXISTING HOME VALUES Federal Housing Finance Agency, Canadian Real Estate Association

10%+

7.5 – 9.9%

5.0 – 7.4%

2.5 – 4.9%

0 – 2.4%

0.1 – 0.9%

1.0 – 1.9%

2.0%+ Canada (Sep): +8.8% U.S. (2Q): +7.5%

NEW DELINQUENCIES, 3Q 2003 – 2Q 2013 ($ billions) Federal Reserve

U.S. NON-CURRENT MORTGAGES, Sep 2013 LPS Applied Analytics (non-current = in foreclosure + delinquent)

14%+

12 – 13.9%

10 – 11.9%

8 – 9.9%

6 – 7.9%

4 – 5.9%

2 – 3.9%

< 2.0% U.S.: 8.9%

1Q 12 1Q 10 1Q 08 1Q 06 1Q 04 $50.0

$100.0

$150.0

$200.0

$250.0

$300.0

$350.0

Mortgages: $118.9 bil Home equity loans: $5.2 bil

U.S. MONTHS’ SUPPLY OF UNSOLD HOMES, Oct 2008 – Sep 2013 Census Bureau, National Association of Realtors

2009 2010 2011 2012

Existing: 5.0 New: N/A

2.0

4.0

6.0

8.0

10.0

12.0

14.0

U.S. NEW AND EXISTING HOME SALES (SAAR, 000), Oct 2010 – Sep 2013 Census Bureau, National Association of Realtors

2011 2012

Existing: 5,290,000 New: N/A

2,500

3,500

4,500

5,500

6,500

2013 2013

TECHNICAL SKILLS Advanced Framing Overview Decks: Advanced Issues Decks: Components & Materials Decks: Construction Decks: Estimating Materials Decoding Building Codes Details That Keep Walls Weathertight Do You Lay Decking Bark-Side Up or Bark-Side Down? Entry Doors: Advanced Issues Entry Doors: Components & Materials Estimating Math Essentials Framing: Foundations & Floors Framing: Roofs Framing: Takeoff Tips & Formulas Framing: Walls Gross Margin & Markup How a House Works: Exterior Shell Insulation: Advanced Issues Insulation: Estimating & Installation Insulation: Principles & Materials Interior Trim Walkthrough Techniques Moisture Control Fundamentals Moisture Control: Advanced Issues Prehung Doors: Estimating & Installation Structural Design Principles Understanding Loads and Using Span Tables Vinyl Siding Systems Vinyl Siding: Estimating & Installation Wood & Fiber Cement Siding: Estimating & Installation Wood & Fiber Cement Siding: Materials & Performance Working With Board Footage CHEAT SHEETS & CALCULATORS ABC Account Analysis spreadsheet ABC Account Analysis Worksheet Accident Report Form Board Siding Estimator's Worksheets Decks: Estimator's Worksheet Estimator's Worksheets: Doors, Windows, Trim Gross Margin & Markup Calculator Insulation: Estimator's Worksheet Legal Interview Questions Reference Guide Load-Builder's Framing Package Cheat Sheet Prehung Doors Estimator's Worksheet Special Order Breakeven Calculator Truth Chart Worksheet Walkout Bay Window Flanker Sizing Spreadsheet Walkthrough Worksheet: Exterior Windows & Doors Walkthrough Worksheet: Interior Doors Walkthrough Worksheet: Interior Trim Window Estimator's Checklist Windows: Walkout Bay Calculator Instructions BEST PRACTICES 12 Ways to Make Sales Meetings More Effective 7 Ways to Close Sales A Field Guide to Sales Management Action Plan for Higher Gross Margins Analyzing Builders' Needs Before Quoting Be Stingy With Discounts Becoming a Primary Supplier Benefits of an On-Site Refueling Program Breathing Your Own Exhaust Stifles Productivity Building Loyalty With a Customer Advisory Board

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6

VITAL STATISTICS: HOUSING

2010 2011 2012 Single-family detached: 63,354 All others: 113,658

U.S. HOUSING STARTS (SAAR, 000), Sep 2010 – Aug 2013 Census Bureau

CANADA HOUSING STARTS (SAAR, 000), Oct 2010 – Sep 2013 Canada Mortgage and Housing Corporation

0

200

400

600

800

1,000

1,200

2010 2011 2012 Single-family: 628,000 Multifamily: 263,000

0

50

100

150

200

250

300

2013 2013

YoY CHANGE IN NEW CONSTRUCTION ACTIVITY (U.S. = YTD permits, CANADA = SAAR starts) Census Bureau, Canada Mortgage & Housing Corporation

Sep 2011-12: U.S.: N/A Canada: +7.3%

40%+

30-39%

20-29%

10-19%

0-9%

0.1-9%

10-19%

20%+ Sep 2012-13: U.S.: N/A Canada: -12.5%

U.S. BUILDING PERMITS (SAAR), Sep 2010 – Aug 2013 Census Bureau

0

200

400

600

800

1,000

1,200

2010 2011 2012 2013 Single-family: 627,000 Multifamily: 288,000

U.S. LEADING INDICATOR OF REMODELING ACTIVITY ($ billions), 3Q 2009 – 2Q 2014e. Harvard University Joint Center for Housing Studies

$100.0

$110.0

$120.0

$130.0

$140.0

$150.0

$160.0

3Q 2009: $111.8 billion 2Q 2013: $128.7 billion 1Q 14 1Q 10 1Q 11 1Q 12 1Q 13

NOT AVAILABLE DUE TO GOV’T SHUTDOWN

SEPT. DATA DELAYED UNTIL DEC.

SEPT. DATA DELAYED UNTIL DEC.

Vital Statistics data compiled with the invaluable assistance of

“It ain’t what you don’t know that gets you in trouble. It’s what you know for sure that just ain’t so.” — Mark Twain

www.LBMResearch.com

7

seven years—they’ve launched new careers and won’t be back. As a result, construction supply is the second-oldest business in the country with a median age of 45.3. Only funeral home employees are older (52.0).

Home building in some markets is already constrained by a shortage of skilled trades, and the challenge in the supply chain is arguably tougher. Construction may not be a popular career, but at least young workers are aware of it. Building supply is all but invisible, lost in a no-man’s land between retail and wholesale.

In CareerCast’s latest rankings of the 200 most and least desir-able jobs, the top scorers are predictably all white-collar, led by ac-tuary, biomedical engineer, and software engineer. The top-ranked construction job is bricklayer at No. 53, followed by plumber (66) and electrician (76).

LBM doesn’t show up at all, but some of the functions do and none of them made the top 100. Truck driver ranked highest (No. 108), followed by purchasing agent (109), forklift operator (112), wholesale sales rep (119), and shipping/receiving clerk (165).

They all ranked lower than sewage plant operator (No. 87).Very few people grow up wanting a career in building supply,

but if you talk to people who have been in the industry for a while, you’ll also find that very few are interested in leaving it.

That includes Millennials who find their way into LBM. Says one, “I found a lot of income potential, plus freedom and responsi-bility similar to running your own business.”

Adds another, “Evolving production methods and ever-changing products make for a work environment that is never dull or slow.”

It’s always fashionable to complain that kids today are going to hell in a handbasket. One researcher calls Millennials “entitle-

Continued from page 2

Greg Brooks is editor of LBM Executive and a 45-year veteran of the construction supply [email protected]

ment-minded” workers who are unwilling to work hard or work their way up the ladder, and satisfied in Mom and Dad’s basement.

In reality there’s very little difference between Millennials and Baby Boomers at the same age. Yes, a record number are living with their parents. Before the crash, the percentage was the same as Boomers in 1968.

It’s also true that Millennials are job-hoppers: 6.3 jobs from age 18 to 25, says the Labor Department. Again, Boomers were right on their heels with 5.5 jobs between 18 and 25.

Millennials aren’t even the crash-pad-with-a-hot-plate-in-Port-land urbanites some portray them as. In one recent survey, 43% said suburbs are the “ideal place to live, compared to just 31% of older generations.”

One big difference: Boomers came of age at a time when jobs were plentiful. Millennials got whacked by two recessions, including the worst one since the Great Depression. That would’ve changed your perspective, too, but it’s a moot point.

If you intend to grow, you need to attract Millennials to your company and create an environment in which they can become top performers.

Young adults living at home, 1968 - 2012 Pew Research

1968

60%

50%

40%

30%

20%

10%

0%1968 1972 1977 1982 1987 1992 1997 2002 2007 2012

32%

Ages 18 - 24

Ages 18 - 31

Ages 25 - 31

32%36%

+6,000,000

+4,000,000

+2,000,000

0

-2,000,000

-4,000,000

-6,000,000Baby Boomers

1964-76GenXers 1983-95

Millennials 2000-12

Three generations: Annual job growth from age 18 - 30 Census Bureau