Has the Housing Downturn Impacted the Employment Market?
By Jim Schaffer
October 2007
According to a Wall Street Journal article published September 13th, forecasters have boosted the odds of a forthcoming economic recession to 36% from the prior month's survey of 28%.
Recession?
That's something we haven't experienced in decades. Is it possible?
Well, according to the article, the increased level of pessimism reported was caused primarily by the "drop in employment" experienced in August, and of course, the residential housing sector is the primary area of focus. Is this cause for alarm, and if so, how will it impact the employment economy?
Let's look at the realities. Construction employment did fall by 22,000 jobs during the month of August, primarily in the "residential specialty trades" as reported by the Bureau of Labor Statistics. This reduction in force would seem to be logical as with fewer homes being built, there would be a declining need for plumbers, electricians, HVAC installers, etc. on the jobsite. And, it's likely that the major subcontracting firms providing these services to the large production builders would lay off a number of these professionals.
But does this really equate to unemployment? Likely, it represents a shift in the employment of these individuals from company payrolls to independent contractor status as their skills are in great demand throughout the country in the repair, remodel and maintenance sectors. Unfortunately, no one has been able to satisfactorily document self-employment in the trades, but we all know that there is more than enough work out there for these professionals. Just call a local plumber or electrician for a minor repair or installation and see how long it takes for them to respond!
Even if I'm only partially accurate in this assumption, there is more good news on the employment front. Despite the reduction in construction employment, the remainder of the U.S. non-farm economy actually increased by 18,000 jobs, leaving us with a minor deficit for the month of only 4,000 fewer jobs. To put this into broader context, despite the minor downturn in the month, our economy has added almost 3.4 million new jobs from August 2005 to August 2007 and our unemployment rate nationally held at 4.6%. What's more, the Bureau of Labor Statistics projects that we will have added over 18 million new jobs in the decade from 2004 to 2014, including an estimated 800,000 jobs in the construction sector, documenting the continued strength of the U.S. economy.
Now, let's put this into perspective. Our civilian workforce has continued to grow despite the decline in housing starts and the Bureau of Labor Statistics projects that it will continue to do so. Add to this the fact that our Gross Domestic Product increased at a dramatic 4% annual rate in the Second Quarter according the Bureau of Economic Analysts report of August 20, even though "residential fixed investment" (housing) was down. In summary, it certainly doesn't sound like a recession from this point of perspective! I don't know who comprises the Wall Street Journal panel of "expert" forecasters, but I wonder if they are basing their perspectives on all of the facts or if they are looking simply at one sector of the economy. Or listening to the "doom and gloom" reported by the media. Yes, we will have to weather the readjustment of the housing market, but most of the vital signs in our economy point to continued, sustainable growth.
So what does this mean for the employment economy? As reported in prior newsletters and documented by the futurists who study the U.S. job market, we are running out of people!
The downturn in residential construction, even if it lasts into 2008 or 2009, will not impact this reality to any degree. As job creation continues into the future and as the "baby boom" generation begins to move into retirement with a smaller "Gen-X" population to take its place, the imbalance between supply and demand for quality talent will only increase. Simply stated, we need to "stay the course" in our employment practices. It's business as usual. We still need to do everything we can to attract and retain top performers as there will be a greater focus than ever before on recruiting top producers in all areas of expertise, and the competition will be fierce!
