Former Federal Reserve Chairman Alan Greenspan remains pessimistic over the slow economy and the construction sector, potentially signalling the continued pressure on homebuilder stocks and sector-related exchange traded funds.
The SPDR S&P Homebuilders ETF (NYSEArca: XHB) has declined 5.4% so far this year while iShares U.S. Home Construction ETF (NYSEArca: ITB) has dipped 4.0%. Home construction stocks have been slowing down this year and remain below their pre-crisis highs. [ETFs Still Nowhere Near Pre-Crisis Highs]
The housing sector’s recovery has been weighed down by slow wage growth and tight credit, which has dissuaded many Americans from purchasing a new home, Bloomberg reports. So far, there has not been a sustained surge in demand associated with an economic recovery.
“What we see is that construction is dead in the water,” Greenspan said at an insurance conference, comparing the current environment to other recoveries since World War II, which “every single one of them was led by construction or longer-lived assets.”
The construction industry remains sluggish, with housing starts in July at a 1.09 million annualized rate, compared to the 20-year average of about 1.35 million. [Millennials Crimping Homebuilder ETF Recovery]
U.S. payrolls rose by 142,000 in August, the smallest increase this year while the participation rate, which indicates the share of working-age people in the labor force, diminished 0.1 percentage point to 62.8%, the lowest since 1978. Due to the “significant slack” in the labor markets, along with the stubbornly low inflation levels, Fed Chair Janet Yellen has stated that the central bank will continue its monetary stimulus.