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When Housing Slows, Employment Declines Follow. Or Do They?

Douglas Cliggott, chief investment officer for Dover Management, told CNBC’s “Morning Call” that the slowdown in housing starts will translate into a decline in employment.

“Over the past 30 or 40 years, we see that housing starts tend to lead employment by 12-to-15 months,” Cliggott said Monday. “We know what happened to housing starts last year -– they turned down significantly. If statistical relationships hold, that should imply that the employment market weakens quite a bit this year.”

But David Darst, chief investment strategist at Morgan Stanley's Global Wealth Management Group, disagreed.

“I don’t buy that, because we have exports up 15% year-over-year and imports are up only 4% and liquidity is flowing all over the world,” Darst said. “I think housing is not as important as it was. It is an important piece of the labor picture, but the labor picture is much broader than just housing. People should focus on two things: profits and interest rates. You can look at this housing slowdown -- the numbers that shocked Wall Street -- and the Fed is going to take interest rates lower and that’s going to help the market and boost the economy in the second half of this year.”

But Cliggott said the increase in exports isn’t enough to offset imports and boost the economy.

“The reality is net exports are still fairly neutral because the level of imports is so much higher than the level of exports,” Cliggott said. “Exports have to grow so fast to make a difference. I think the more important variable is liquidity, and there I would say what we know is credit growth is maybe the primary source of liquidity and that’s slowing down significantly as well.”