It’s the Kind of Job Lost or Found
Tom Acitelli Jan. 12, 2010, 9:59 p.m.
Tempering the cautious optimism that followed the better-than-expected November jobs report, the nation’s employers cut net payrolls by 85,000 jobs in December. The preliminary estimate of December job cuts, announced by the Bureau of Labor Statistics last Friday, contrasted with many economists’ expectations that the labor market was poised to report its first gains since 2007. In addressing the news of December’s decline, the president restated his administration’s commitment to expend resources in support of a return to growth: “The jobs numbers that were released by the Labor Department this morning are a reminder that the road to recovery is never straight, and that we have to work every single day to get our economy moving again.”
As part of the administration’s commitment to expend resources in support of job growth, the president also announced a new clean-energy initiative on Friday. By extending $2.3 billion in tax credits to manufacturers of clean-energy technologies, the administration expects to create up to 17,000 new jobs. Overall, the White House currently projects an increase in net employment over the first quarter of 2010. If this expectation bears out, the labor market will have stabilized sooner than it did following the last recession. In the aftermath of the 2001 contraction, six quarters passed before a return to sustained employment growth was established, in the second half of 2003.
Of course, the current recession has followed a very different path on the downswing than its relatively milder predecessor. It need not follow a parallel and equally plodding pace of recovery simply for consistency’s sake. Rather, the challenge for policy makers and economists rests in the basic uncertainty as to where jobs will come from. The focus on green opportunities is the clearest indication that policy makers do not have an immediate answer to this question. Nor do they have the required consensus to reduce payroll disincentives broadly and directly.
Whether the economy continues to bleed jobs on top of the 7.2 million that have been lost since December 2007 is of central importance to the outlook for multifamily and commercial real estate fundamentals. At least in the aggregate, the industry’s core property supply curve will hardly shift over the next few years. Instead, whether fundamental conditions worsen or improve depends almost exclusively upon whether and how soon Americans go back to work.
Across the board, employers remain unwilling to grow payrolls. As concerns job cuts, however, the board is surprisingly uneven.
Breaking down the drop in non-farm employment, losses in December were concentrated in goods-producing sectors, including manufacturing and construction. In the former category, employment fell by 27,000 jobs. In construction, losses were even greater, totaling 53,000 jobs. Consistent with evidence of an uptick in single-family housing activity and construction spending, the decline in construction employment was concentrated in areas related to non-residential building and specialty trade activity. Given a cyclical decline in non-residential construction activity, we can expect job losses in these areas to persist for some time yet.
In contrast with the losses in construction and manufacturing, net employment fell by just 4,000 jobs in the service sectors, which represent the greater share of office space demand. Controlling for a drop of 21,000 public-sector jobs, private service-providing payrolls actually increased by 17,000 jobs in December. In addition to the expected gains in education and health services, increases in financial activities employment and professional and business services employment were surprisingly robust over the month. The bulk of the increase was in temporary and administrative services, but these may serve as leading indicators of permanent employment gains.
For now, firms’ continued hedging on permanent employment growth is evident in the Labor Department’s household survey. The report shows that while employment cuts are moderating, the labor market has resisted policy interventions designed to open meaningful new opportunities for the unemployed.
The headlines show that the unemployment rate was unchanged at 10 percent between November and December. But this result should not be misconstrued as a positive indicator of the labor market’s underlying trajectory. Rather, the unemployment rate reflects that 843,000 people exited the labor force between November and December. Many of these people simply gave up looking for work, due to a paucity of job opportunities. And as a result, the labor participation rate fell from 64.9 percent in November to 64.6 percent. Overall, we must heed the possibility that this resource slack reflects structural weaknesses in labor market conditions and not just cyclical issues.
For persons with less than a high-school diploma-a group that is overwhelmingly apartment renters-the unemployment rate inched up from 15 percent to 15.3 percent in December. Similarly, for young heads of household aged 20 to 24, the unemployment rate was 15.6 percent.
Apart from the direct implications for the various sectors-and of greatest concern for our estimation of the policy and real-estate-demand challenges-Americans who have lost their jobs are failing to uncover opportunities thus far. Both the average and median duration of unemployment in the United States increased to new historic highs in December. Almost 40 percent of unemployed Americans have now been out of work for more than six months. For this group, numbering more than 6.1 million people and up from 2.6 million a year earlier, the path to renewed prosperity depends on our addressing the structural impediments to employment growth and productivity.
However important the clean-energy revolution for our collective futures, the near-term growth potential of these industries offers little immediate relief for the masses of unemployed or for commercial real estate.
Sam Chandan, Ph.D., is president and chief economist of Real Estate Econometrics and an adjunct professor of real estate at Wharton.