Economist's Commentary: July 14, 2008

Employment Trends:  An Economy Running in Two Directions

By Ken Fears
Manager, Regional Economics

Job creation is crucial to economic health. Lately, the news on jobs has not been all that good. The U.S. employment level has been falling since January of 2008. Roughly 283,000 jobs were lost between January and May, and from May 2007 to May 2008 employment has grown just 0.2 percent. The initial layoffs were substantial, but this surge has slowed.

What's driving this slowdown? New layoffs are being caused by the downward movement in the housing market and the general U.S. economy. But not all industries are experiencing the slowdown in the same fashion.

As the housing market slowed in 2006, many people lost work in the residential construction sector. Some of this labor was able to shift to the commercial sector where skilled labor was in short supply. Then, however, the commercial real estate market began to slow in the second half of 2007; consequently, so did commercial construction. Layoffs for the entire sector were on the rise by the late fall of 2007. Over the 12 months ending in May of this year, the construction sector lost 386,000 jobs, a decline of 5.1 percent.

Like construction, the financial service sector also felt the impact of the decline of the U.S. housing market. Following the credit crisis last summer, most banks scaled back mortgage lending operations and cut sub-prime outfits altogether. But the ripple effect was even more pronounced. Many appraisers, inspectors, and real estate services professionals were also left without work because of the steep decline in sales volume. A total of 91,000 jobs were lost in the financial services sector over the 12-month period ending in May of 2008.

More recent economic changes are also impacting employment. Steadily increasing fuel prices have weighed on the trade and transport sector for some time. Business owners in this sector have been forced to strip payrolls in order to cut costs as oil prices sky-rocketed. As a result, job losses in this sector have accelerated since December, with 228,000 jobs shed over this 6-month period.

However, the hardest hit sector by far has been manufacturing which lost 341,000 jobs -- or 2.3 percent over the May 2007 to May 2008 period. This sector started its decline earlier than the rest of the economy, though, and has shed roughly 621,000 or so over the last 2 years.

There are some bright spots. The weak value of the dollar has attracted a steady stream of tourists to the United States for site-seeing and shopping. Employment in leisure and hospitality industries is up by 2 percent, or 272,000 jobs in the 12 months May 2007 to May 2008. The big winner during this time period has been the education industry, where employment has grown by 3.2 percent or 577,000 jobs!

In all, the construction related job losses account for nearly a third of all job losses with the majority of these losses concentrated in a few states.

While the economic slowdown has raised many alarm bells, the most dire situation has not yet emerged. To date, this downturn has been relatively mild with pockets of significant slowdown, but it could take a turn for the worse. Job losses have been concentrated in the manufacturing and real estate-related sectors, the bulk of the large losses to date have been in the construction and mortgage banking industries and concentrated in a handful of states. Most states and regions have experienced relatively mild upward or downward swings in employment.

Employment is critical to generating new home sales as well as keeping people out of foreclosure. While the national statistics on jobs - as well as those for a few industries - look dire, employment in some sectors of the economy has been relatively steady. The long-term impact is tough to foretell, but these steady employment statistics to date bode well for transitioning through this tough housing market.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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