How to solve Arborvitae Problems?
The cocoon like bags that you see on your tree are the protective cases of an insect called bagworm. Remove and destroy all the bags that you can find. This will prevent the adult female inside from laying eggs next spring. Also watch the tree very closely in the spring for additional damage, in case you missed some bags. An insecticide sprayed now will be ineffective, because the insect is protected inside the case. However, if you see feeding injury early in summer, you can kill the feeding larvae with Bt or another insecticide.
Arborvitae often fill in new growth if they have been partially defoliated. However, your description of lost foliage next to the siding suggests that the defoliation may be as much from shading as from insect defoliation.
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