Dear Mr. President: I Think You Have A Problem!

This is a great letter drafted by my good friend Alan Nevin with MarketPointe Realty, and I thought I would share it with you.  You can read the original letter posted on the Wealth & Legacy Series blog on The Center for Wealth & Legacy Studies.  Alan Nevin is one of the co-founders of The Center.

In about a year from now, you will have to start running for your second term. No doubt it would wound your ego to no end to be a one-term president and yet it would be very difficult for you to be elected to a second term if the economy continues to be in a moribund state.

I really don’t want the word “sickonomy” to be the byword of your administration.

Now, we have all read in the business section that our gross national product is rising; that productivity is just plain great; that the stock market is solid; oil prices are stable; our interest rates remain low; Walmart and McDonald’s are bursting with economic vitality; and that our leading lending institutions are healthy once more.

Unfortunately, all of these wonderful things happening to our economy are without the benefit of new jobs.

And frankly, Mr. President, without new jobs, you don’t have a shot at a second term.

It appears to me that your gnomes in the West Wing are spending all their time working on the auto industry, a category that at best is a minor player in the national economy, especially when you consider that at least a quarter of the sales are of vehicles made somewhere besides the United States, or substantially containing parts made outside the country.

Automobile manufacturing employment in the United States in 2008 totaled 877,000 jobs.

Now let’s talk about America’s really important industry: housing construction. Now there’s an industry that deserves your full and immediate attention and is barely a footnote in your economic stimulus agenda.

In a year in which construction is healthy, homebuilding employment is almost 10 million, more than 10 times that in the automobile manufacturing industry; and, in that 10 million I am not counting the multitude of jobs in industries that directly relate to construction or manufacturing the materials that go into the construction of a home.

Before the housing industry fell apart, there were more than 9000,000 firms in the construction-related businesses.

New housing constitutes more than 80 percent of construction employment in this nation and that industry is really hurting right now, and that’s a shame, because it it the one industry that can put you back in the White House in 2012.

Let me share a few facts with you:

First, the residential construction industry has twice the economic multiplier of virtually any other industry in America (according to the economic model developed by the U.S. Department of Commerce)

There’s a good reason for that, or I should say, four good reasons:  

• First, it is a highly leveraged industry, which means that a relatively small amount of equity will cause a whole house to be built. So a small investment generates large amounts of material purchases and new jobs.
• Second, virtually all materials used making a home are created within the 50 states.
• Third, it is a labor-intensive industry. Typically, 50 percent of the cost of a new home is the labor component and all that labor is local. A new home is a genuinely a “made in the U.S. A.” product.
• And fourth, the purchase of a new home sets off an amazing round of purchase activity that is home-related. A multitude of jobs are created in the escrow, title, finance, landscaping and home improvement industries.

In addition, typically, every time someone buys a new home, there are four resale homes sold. And those sales, as well, create another multitude of jobs in the industries noted above.

The home remodeling business, when things are good, is far larger than the automobile manufacturing business.

Housing construction has plummeted from almost 2 million units in 2005 to fewer than 500,000 unties in 2009. Imagine that, Mr. President. America’s most potent economic job generator is down 75 percent and your administration is doing virtually nothing to change the situation.

And I won’t even bother to mention the impact of the home construction industry on the construction of and demand for retail, office and industrial space.

The big question is: “What can you do to generate a massive increase in new home construction?” I am going to tell you in my next article right here in The Daily Transcript.

THE DAILY TRANSCRIPT Posted WEDNESDAY, DECEMBER 16, 2009

Respectfully submitted,
Alan Nevin
Director of Economic Research
MarketPointe Realty Advisors

Dear President Obama: I Think You Have A Problem.