Zacks Analyst Blog Highlights: D.R. Horton, Plum Creek Timber, Berkshire Hathaway, USG and Bob Evans - Press Releases

For Immediate Release

Chicago, IL – November 19, 2010 – Zacks.com Analyst Blog features: D.R. Horton (DHI), Plum Creek Timber (PCL), Berkshire Hathaway (BRK.B), USG (USG) and Bob Evans (BOBE).

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Here are highlights from Thursday's Analyst Blog:

Housing Starts Plunge in October

Housing Starts plunged in October to a seasonally adjusted annual rate of 519,000 from 588,000 in September, a decline of 11.7%. Relative to a year ago, they are down 1.9%. Quite frankly, a year ago was also a pretty lousy time for the homebuilders as well.

Most of the month-to-month decline came from the extremely volatile multi-family (Condo and Co-op) sector, which plunged 47.5% to an annual rate of just 74,000 units. That, however, is up 51.0% from an annual rate of just 49,000 a year ago. I told you that was a volatile series. What most people think of when it comes to housing starts -- new single-family homes -- fell 1.1% on the month to an annual rate of 436,000, and down 8.2% from a year ago.

The starts number was far below consensus expectations of a 600,000 annual rate. Also, the September starts were revised sharply lower from an originally reported rate of 610,000. Thus, relative to where we thought starts were running, the month-to-month decline is more like 14.9%. This is a very disappointing report, even if most of the damage came from the Condo sector.

Housing Starts Crucial to Economy

It is hard to overstate just how important housing starts are to the economy. Yes, at this point, residential investment has declined to the point where it looks almost insignificant -- just 2.22% of GDP in the third quarter, down from over 6.3% of GDP at the height of the housing bubble. However, historically, residential investment -- of which new home construction is the largest part -- has always been the main locomotive in pulling the economy out of recessions.

Of course, this boom later became known as the housing bubble, which put us in this mess to begin with. Every other recession was preceded by a sharp fall in housing starts.

This is no coincidence. Each new home built generates a huge amount of economic activity. It puts construction workers back to work, and construction workers have been particularly hard hit in the Great Recession, accounting for over 25% of the total jobs lost, even thought they were less than 6% of the total workforce when the recession started.

The effects go much further than just the profitability of D.R. Horton (DHI). Each new home requires a lot of lumber from firms like Plum Creek Timber (PCL), roofing and insulation materials from Johns Manville, part of Berkshire Hathaway (BRK.B) and wallboard from USG (USG).

This list goes on and on, but it also means jobs for the lumberjacks and factory workers in those plants. They are not included in that "one out of four jobs lost" figure. As they and the construction workers go back to work, they are also going to have more money to spend, perhaps even go out to eat at Bob Evans (BOBE), thus creating jobs for cooks, waitresses and busboys.

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