Friday, October 05, 2007

The missing missing construction workers

It was a glorious afternoon in early October, as I recall. I was reclining in my rooms on Baker Street, enjoying a quiet pipe and perusing a medical journal, when the front bell rang vigorously and was swiftly followed by the pounding of foot on stair.

"Good Lord, Holmes!" I exclaimed. "Someone is in desperate need of your aid!"

Mr. Sherlock Holmes peered from behind the pages of his newspaper. "That would be Lestrade. He's here about the missing missing construction workers, no doubt."

Sure enough, the door to our rooms was wrenched open, and before Mrs. Hudson could announce him, Chief Inspector Lestrade elbowed past her and burst into the room.

"But how did you know it was Lestrade......" I began.

"....and how did you know I was here about the missing missing construction workers...." Lestrade continued.

"....and what are the missing missing construction workers?" I concluded.

Holmes sighed. "Gentlemen, gentlemen. How many times do I have to describe my methods to you? Lestrade, I'm not surprised that your technique and mine do not intersect, but come now, Watson! You've had ample opportunity to observe my methods at close quarters; surely the barest residue of my ways should have clung to you by now."

I slumped into my chair with a guilty look. In the pit of my stomach, I felt as if I'd let Holmes down.

"Surely, Watson, you heard a hansom screech to a halt directly beneath our window just now. You know as well as I that there's nary a parking space to be had on Baker Street, especially at this time of day. So the hansom must be illegally stationed on the street: who but a policeman could do such a thing in broad daylight without fear of clamping? And which policeman comes to see us more than any other? None but Lestrade!”

The inspector bowed slightly.

"When I heard the distinctive ring of Lestrade's taps on our stair, I knew I had my man!

"As to the reason for your hasty visit," Holmes continued, turning towards the policeman, "nothing could be simpler. The papers have been full of accounts of the missing missing construction workers for many months now. This morning's paper had a front page story suggesting that an announcement is to be made at 1.30 London time today; as yesterday's paper said that you'd been assigned to the case, I quite reasonably deduced that the construction workers occupy your full attention, and thus must be the reason for your visit."

"Brilliant, Holmes, brilliant!" cried Lestrade, clapping his hands.

"A trifle," said Holmes dismissively. "But perhaps you'd better fill Watson in on the particulars of the case."

"It's a confusing business, and I'm deuced if I know the answer," said Lestrade. "As you've no doubt read, the Americans are having a spot of bother with their housing market. I'm not exactly sure what's caused it, something to do with things called subprime and ARMs..."

"...about which I've written a rather trifling monograph, breaking down the cash flows, securitization process, and credit modelling methodology of 137 exotic mortgage products," interjected Holmes.

"...but that's not important right now. The upshot is that the homebuilders, the people who build houses in America, well, they've built too many of 'em. So many, in fact, that they're selling some of these houses off at forty cents on the dollar...that's 20p on the pound, if I've figured the exchange rate properly."

Holmes raised his eyes skyward, as if in supplication to a higher power.

"In any case, that's not the mystery. When the housing market was booming, these homebuilders hired workers left, right, and centre. Couldn't get enough of 'em! But in the last couple of years, times have gotten tough. These homebuilders have already got too many houses on their books, so there's less need to build more of 'em. But here's the odd thing." Lestrade grabbed the arms of my chair, and leaned in close. His voice dropped to barely more than a whisper.

"These homebuilders. Some of them have gone bust. Some of them may be about to. Even the good ones won't be building as many houses next year as they did last year. But we have no record of them letting construction workers go. Their payroll data should show missing construction workers as they shed labour. But they don't. Those missing construction workers are....missing!"
"Bravo, Lestrade!" exclaimed Holmes. "An excellent summary! But now, to the matter at hand. You want me to find out why the missing construction workers are missing."

"Yes, Holmes, yes! I'm frantic! The big announcement is this afternoon and I don't know how to play it!"

"Have no fear, Lestrade. I've already given the matter some thought, and I'm sure we can get to the bottom of this. Go have a nice lunch, and come back at one o'clock sharp. I'm sure we'll have an answer for you by then."

Lestrade looked doubtful, but nodded, turned on his heel, and strode out the door without another word. Five minutes later, Holmes followed him, clad in one of his amazing disguises-this time as a City wide boy. He had a mirthful look on his face. "No, Watson, I don't think I'll need either you or your revolver for this case," he said. "Just sit tight, and I'll be back at quarter to one."

I spent the rest of the morning fitfully, reading and re-reading the same sentences in my medical journal, my mind straying to the strange case of the missing missing construction workers. At a quarter to one, I looked expectantly at the door, waiting for Holmes to stride through it with a triumphant look on his face. But he was nowhere to be seen. I began to worry...had some sinister force finally got the better of the world’s most famous detective?

At five to one, the bell rang, and I heard the sound of a slow, heavy foot upon the stair. Attempting to apply Holmes’ methods, I concluded that our visitor was not Lestrade, who typically ascended with alacrity, but perhaps an overweight, elderly gentleman who lacked the vigour to climb quickly.

The door to our rooms opened, and I was disappointed to see the figure of a thin, wiry, and decidedly ill-favoured lout leering at me.

“All right, mate?” he drawled. “You is Watson, innit? Your mate ‘olmes asked me to come here and tell you that he’s gonna be late.” He slumped into a chair and threw his leg over one of the arms. As this fellow sat back grinning at me with his oafish face, I attempted to turn my attention back to my journal.

At one o’clock the bell rang again, and in walked Lestrade with an expectant look on his face. When he saw my loutish companion, he frowned. “See here, fellow, who are you? And where is Holmes? I need to see him, and sharp!”

“Ah ha, you is the Old Bill, ain’t you,” said the lout. “You is the one what’s been lookin’ for me.”

“Looking for you? What could you possibly mean? I am looking for Mr. Sherlock Holmes, man!”

“Nah, you is lookin’ for me, mate. I is one of them missing missing construction workers, ain’t I?”

Lestrade and I gasped. “You!” Lestrade exclaimed. “But who are you, and where have you been?”

The figure took his leg off of the chair’s arm and stood up. Amazingly, his figure was both taller and broader than when he had first walked into the room, and his features softened. It was Holmes!

“It’s simple, my dear Lestrade. When you find an obvious disparity between what is so and what should be so, often times the simplest answer is the best. I went out this morning as a City wide boy and attended a research meeting, where I laid hands on some data. As you may or may not know, Lestrade, the US Bureau of Labour Statistics revises its benchmarks annually. When it does so, one often finds that past estimates of payrolls can change dramatically. This March, for example, the BLS revised past job growth up by 725,000.

“Today, they will announce an initial estimate of next March’s revision. To get a sense of what conditions for construction workers have really been like, I clad myself in this loutish guise and hung about a few London building sites, hoping to chat to a few fellows who may have crossed the Atlantic to find their fortunes but returned empty-handed. Sure enough, they reported to me that work began drying up a few quarters ago, even as their employers told Wall Street that everything was grand.

“When the preliminary benchmark revisions are announced today, I fully expect the back data to be marked down, and the missing missing construction workers to appear, as if by magic! Don’t be surprised, however, if the headline number is a strong one: August and September had thousands of missing teachers, and I shan’t be surprised if they reappear in October.”

Lestrade shook his head in admiration. “I say, Holmes, you really are remarkable. I cannot claim to agree with your methods, but I must admit that they do work on certain types of cases.” He grasped Holmes’ hand and shook it vigorously.

“Come now, Lestrade, it was really nothing. Professor Moriarity and Colonel Moran proved much more difficult to overcome than the missing missing construction workers. And now, Watson,” he said, glancing at me, “I am missing the construction of a tasty lunch on a plate in front of me. What do you say to a saunter over to the Stand and a nice long lunch over a bottle of claret and a pipe or two at Simpson’s?”


t said...


Alternative thesis: unregistered immigrant labour, a large part of the construction workforce, gets fired first.

Macro Man said...

Yes, theer's clearly an element of that. But by any reasonable measure, some of the reported hires in 2002-2005 should start to get turfed out; they cannot all be going to non-res construction.

Anonymous said...

Alternative thesis #2: Construction workers shifted to non-residential construction which lags...

vince said...

elementary my dear watson

excellent post - a bit of poetry in this world of numbers.

"Cassandra" said...

Surely the "missing workers" are out cavorting with the "Dr Inflation" [errr I mean doctored inflation]. Apparently there is a huge vacant space where America's energy policy should be, that's been turned into a speak-easy called "Dick's". My sources tell me they are both down there. Rumour also has it that a certain Madame Kyoto and Mr Fiscal-Policy were rendited to the same place there at the behest of some K-Street heavies, and friends of Dick, where they've been bound, gagged, and had ...(remember that scene with "The Gimp" from Tarantino's Pulp Fiction?)......

Anonymous said...

If you look at the publics listed inventory on their balance sheet it is surprising to see that y-o-y inventory #'s are hardly changed. So maybe the mystery isnt such after all. The entitlement process is such that builders have much invested once they are at the point to put up sticks, so they just figure they'll build through the slowdown and hoped to be saved by lower IR's. Plus, they have to build to move the land off their books that is already developed, it's not favorable to mothball land, as the carry is more than realized by most. Maybe the BLS has this one right, the layoffs are still to come.

Macro Man said...

There is probably something to that, RJ. After all, in 1990 construction employment didn't begin to decline until starts reached 1.3 mio annualized pace...more or less where we are now.

Then again, the level of employment is so much higher now (granted, some of it non-res) that it seems reasonable to think that the labour-shedding threshold would be a bit higher.

Linda P. said...

Excellent post Macro Man!

So when do all the Wall Street layoffs make their appearance...

Corey said...

So we have: 1) ok US employment, but decidedly on a lower growth path; 2) good worldwide growth; 3) ample liquidity, or excessive liquidity depending on your game plan; 4) a US subprime mess that will likely get worse and lower the growth of US consumer spending; and finally 5) a Fed that is willing to inflate away the US debt bubble.

When most USD bulls are actually counting on a crisis, or worldwide recession/deflation to really move the dollar up, I can't picture a worse scenario for those bulls than we have right now.

-A slowing US economy relative to a robust world one
-Excess liquidity and a Fed that just cut big (and made a mistake)
-Equities, energy and commodity complexes making all time highs
-Huge twin US deficits
-Gold flirting with a major breakout on its way to testing its $850 high

With the last few days in gold turning the stomach a bit, my comfort level being long was challenged...but I can't think of a better play in this environment than being long gold. Until we get some $20 up days and near $800, I won't look to reduce my long exposure.

Macro Man said...

Linda, we're seeing it a smidge already, but outside of mortgage and money market desks it's difficult to see where the pain is.

Anonymous said...

What do you think of chart 3 on this site?:

The Dane

Macro Man said...

Dane, I have little doubt that some of the displaced housing workers have moved on to non-res construction. But I'd also note that overall construction spending has declined, and it would seem reasonable to posit somewhat greater construction job losses than what's been observed to date.