Employment Trends: Layoffs, But Not Everywhere

Written by by Ken Fears, Manager, Regional Economics - NAR

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 and locations 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. But then 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.

Economic Changes

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 jobs 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 sight 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!

Uneven Slowing

Regionally, the impact of the slowing housing market has been uneven. California has experienced sharp declines in both the construction (88,400 jobs lost) and financial service sectors (34,900 jobs lost). The large concentration of mortgage brokering businesses in the Los Angeles area made it ripe for a sharp increase in layoffs following the sub-prime crisis. Nevada has also experienced a sharp decline in construction and the industry has been laying off jobs in most regions. Despite these developments, it’s not all bad news. The West boasted one of the strongest net job growth rates over the 12 months - May 2007 to May 2008. Employment in the region is actually up by 83,000 during the period, making it the second strongest region in terms of job creation over those 12 months. New employment in the trade, information, education and leisure areas have led the way.

This cycle’s employment pattern are similar across the country with moderate number of jobs construction- related job losses. However, those states that experienced the sharpest home sales and home price growth from 2000 to 2005 have felt the sharpest decline in construction employment. From May of 2007 to May of 2008, California, Florida, and Arizona experienced declines in construction employment of 88,400, 77,200, and 27,700, respectively. Of the 50 states and the District of Columbia, 43 experienced a decline in construction employment over those 12 months.

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.

Uneven Gains

Outside of the West, employment gains have been strong enough to more than offset the construction related losses. The South has done particularly well tacking on nearly 325,800 jobs since May of 2007. Texas has experienced its own job boom, adding 238,000 of these jobs. Florida’s loss of 74,700 jobs was more than made up for in by gains in other states like North Carolina (35,000), Louisiana (32,000), Georgia (20,200), and South Carolina (13,500). The service and education sectors have done well in nearly all Southern states except for Florida where the booming education sector could only ameliorate service sector losses.

The education, service, and information sectors have all done a good job at generating jobs in the Midwest, while the results for the financial and trade sectors have been mixed. The manufacturing sector suffered in nearly all states. Losses in the manufacturing sector accounted for nearly another third of job losses. However, many of the markets losing jobs in this sector are in those states located in the rust-belt of the Midwest or in localized areas that create goods for the slowed housing sector.

In the Northeast, the finance, trade, and information sectors suffered in nearly every state. Small-scale manufacturing was also hurt across the board. But the economy of Rhode Island suffered in almost every sector, whereas most Northeastern states posted steady improvements in employment in theservice, education and leisure sectors.

Employment is Critical

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 states – look dire, employment in some sectors of the economy and in the states which have a heavy concentration of industries and services in those sectors has been relatively steady. The long-term impact is tough to foretell, but these steady employment statistics to date bode well for transitioning through these tough times for housing.