A Housing Slowdown Can
Put the Brakes on Jobs
Mortgage brokers, prepare your resumes. And while you are at it, highlight any experience you've had in health care.
The reason: Housing, the biggest generator of jobs in the current expansion, is running out of steam. As a result, tens of thousands of Americans, from bankers to hardware-store clerks, are likely to find themselves out of work over the next couple of years. For those who can transfer their skills to other industries that are still growing, such as health care, it won't be the end of the world.
"It's not going to be a big show-stopper, because there are other areas of the economy that are picking up," says Brian Bethune, U.S. economist at consulting firm Global Insight.
Few sectors can claim to have as much sway over the economy as housing. Housing-related employment has accounted for about 23% of the 4.9 million jobs created since the nation's job market began to grow in late 2003, according to Moody's Economy.com. That includes architects, contractors, real-estate agents, brokers and bankers, as well as the host of others who provide the industry with materials and services.
"There's never been a housing boom like this one in terms of the reach, in terms of the range of industries affected," says Ethan Harris, chief U.S. economist at Lehman Brothers in New York. "This is clearly unprecedented."
Now, the boom is coming to an end. Total single-family-home sales were running at an annualized rate of 7.1 million in April, down more than 6% from the June 2005 peak. Backlogs of unsold homes are rising, and price increases are slowing.
Economists expect the slowdown to affect more than just housing-related jobs: As stagnating house prices and higher interest rates limit Americans' ability to use their homes as a source of cash, they are likely to spend less money on consumer goods, meaning less work for all kinds of folks, from assembly-line workers to shop assistants.
Signs of weakness in housing-related employment are already appearing. Last week, KB Home, of Los Angeles, one of the nation's largest home builders, said it had laid off about 7% of its 6,600 workers. Earlier, ACC Capital Holdings Corp., the parent of mortgage lender Ameriquest Mortgage Co., announced plans to lay off 3,800 workers. And Washington Mutual said it would be cutting 2,500 jobs related to its home-loan business.
"There's no question that the downturn in the mortgage business has caused a lot of banks to cut jobs," says John Challenger, chief executive of Chicago outplacement firm Challenger, Gray & Christmas Inc.
From a macroeconomic perspective, the housing slowdown, and the attendant slowing of job growth, could be just what the economy needs. If, as some economists predict, the monthly average rate of growth in U.S. non-farm payrolls falls and stays a bit below 130,000 -- from about 175,000 in the first quarter -- that would help keep wages in check, relieving the inflationary pressures that have worried Federal Reserve officials and, as a result, spooked financial markets. "That's exactly what the Fed would like to see," says Mark Zandi, chief economist at Economy.com.
No single sector of the economy has the potential to make up for all the jobs likely to be lost in a housing slowdown. Still, some can provide a cushion. All across the economy, companies are running up against the limits of what they can get out of their current workers -- a situation economists say will drive more hiring.
"As long as the economy is expanding, you have to add inputs from somewhere, and labor is the easiest input to add," says David Greenlaw, an economist at Morgan Stanley in New York.
Industries that have picked up the pace of hiring in recent months include health care, finance (excluding housing-related finance), education and nonresidential construction. Manufacturing, too, is benefiting from increased capital investment in the U.S. and abroad: The sector has added 134,000 production jobs since September.
Not all of the new jobs will be a good fit for people forced out of housing-related work. Immigrants who specialize in low-skill tasks could be among the hardest hit. "The low-skilled or unskilled worker is going to be displaced," says Global Insight's Mr. Bethune.
Still, some skills are transferable. Carpenters and electricians, for example, can find jobs on commercial and public projects like office buildings and schools. People who can find ways to improve companies' productivity -- say, by making loan applications easier to fill out -- are always in demand, says Andrew Wilkinson, a managing director in Los Angeles for KForce Professional Staffing. He recently found jobs for a number of business analysts laid off by Ameriquest. Their new employer: Kaiser Permanente, the U.S.'s largest health plan.
"Those are the types of folks that our customers generally struggle to find anywhere," he says. "We put them into health care, we put them into biotech and we put them into other financial-services companies."
Email your comments to rjeditor@dowjones.com.