The Almost Daily 2¢ - Direct Hit!
Building on yesterday’s post, let’s take a look at some data that might provide a basis for drawing a conclusion to the first question posed, namely:
1.) What, to date, has been the “direct” impact of the housing decline on the labor market including fallout from construction, real estate services, building materials, home furnishings, home services and retail?
First, as a baseline, it’s important to understand that the Bureau of Labor Statistics (BLS) provides two separate collections of survey data, the Household data and the Establishment data, when tracking the labor market.
Without going into too much detail about the differences in each collection (you can get a general understanding here) suffice it to say that, as you can see in the chart below (click for larger version), both sets of data essentially report the same trend.
Given that the Establishment collection contains MANY more sub-series of payroll data to analyze, I will use it for all remaining charts.
Next, take a look at (click for larger chart) what represents essentially a “bull’s-eye” hit to the job market coming from the housing decline, namely, residential construction related payrolls.
This chart is combining both the “residential building” and “residential specialty trade contractors” into one payroll series and then plotting the data since 2002.
Notice that, in aggregate, these payrolls, having peaked in March 2006 and declined 6.45% or 221,900 jobs since then, appear to be headed lower.
Also note that independently, “residential building” has lost 5.6% of its payrolls or 57,600 jobs since it peaked during September 2006 and that “residential specialty trade contractors” have lost 7.42% of its payrolls or 180,400 jobs since it peaked during February 2006.
Next, let’s take a look a slightly broader set of industry sectors that have been directly impacted both by the housing boom and now the bust (click for larger chart).
Note that I carefully selected sectors that showed either an obvious expansion-to-contraction trend OR a flattening-to-contraction trend and that ALL sectors have both a historical and logical relationship to residential housing as well as recent industry press releases disclosing declining profits as a result of the housing bust.
As you can see, sectors that are now being directly impacted by the current housing decline are numerous and cut across many levels of the job market from construction and materials to manufacturing and finally to retail.
Combining these series into an aggregate of payrolls “directly impacted” by the housing boom and bust cycle and plotting it, along with the S&P/Case-Shiller Composite Home Price Index (click on chart below for larger version) since 1997 provides some pretty solid evidence that a relationship exists.
Furthermore, as you can see from the chart below, this series also shows a pretty strong relationship to the 2001 recession and, in fact, has now contracted roughly to the same degree, 2.28% (vs. 2.29% during 2001-2003 contraction) on a year-over-year basis and 3.66% (vs. 5.01% during 2001-2003 contraction) since the peak set in March 2006.
To expand the analysis a bit look at the following chart that shows percent change on year-over-year basis to BOTH the “directly impacted” payrolls sectors and ALL private non-farm payroll overlaid with the S&P/Case-Shiller Composite Home Price Index.
As you can see, the “directly impacted” payrolls are declining at an increasing rate and that overall private non-farm payrolls, while continuing to increase, are doing so at a declining rate.
Finally, let’s get a sense of the relative intensity of the pullback to the “directly impacted” payrolls by plotting both the percentage of overall private non-farm payrolls that the “directly impacted” aggregate represents as well as the contributions it is making to the rate of change of the underlying total private non-farm payrolls.
Notice that at its peak the “directly impacted” payrolls represented over 6.6% of Total Private Non-Farm Payrolls and now contracted to a degree similar to that seen during the entire course of the 2001-2003 contraction.
All in all, I think it’s safe to say that there has been a substantial and prolonged contraction to an aggregate of jobs as a result of the housing bust representing over 6.6% of all private non-farm payrolls and that, having roughly equaled the intensity and extent of pullback seen during the last recession, clearly poses an ongoing and developing risk.