August jobs report: Grim for economy but positive for construction | Notes from Jim Haughey

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Notes from Jim Haughey
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August jobs report: Grim for economy but positive for construction

Jim Haughey

RCD Chief Economist

Sep 05, 2008

August construction layoffs were the smallest more than a year. Layoffs averaged 8,000 /month in the previous twelve months. Total construction hours worked increased 0.3% in August. Average hourly earnings in construction jumped 0.9%, pushing total job site wages paid up 1.1%, compared to a 25 rise in the total economy.

14,000 jobs were dropped by residential specialty contractors. This suggests that the slowdown in completion of new homes under construction reported in June and July continued into August. Some of this job decline is due to reduced remodeling work. Remodeling construction spending for June was marked down sharply by the Census Bureau earlier this week with July estimated at about the same level.

Nonresidential specialty contractors added over 9,000 jobs in August, reversing 1/3 of the job cuts in the past year. This big change is probably partly random but it does suggest that this market is continuing to expand in spite of declining new starts in recent months.

In the broader economy, large job cuts are still confined to a small set of industries – motor vehicles (53,000), temporary help (37,000), retail sales (31,000), housing & mortgage (23,000), and industries sensitive to high fuel costs such as airlines and hotels (12,000). At this point, the job cuts look like a shock reaction to problems in housing finance and oil prices rather than the economy-wide cuts characteristic of a sustained recession. Ominously, government employment increased only a very low 17,000 in August. 15,000 of the jobs were in local schools so general government employment is stagnant, under pressure from sagging tax receipts.

It is not yet clear whether the “shock” job losses will ebb or reverse soon enough to prevent the spread of layoffs to the rest of the economy beyond general government operations. Housing starts have stabilized but downstream real estate and mortgage activity continues to shrink. Gasoline prices have dropped 40.50/gal. in the last two months.

Reed Construction Data believes that the improvement in housing and energy prices, if only to less bad, will be enough to end the shock job cuts later this year before they set off a prolonged recession. But a recession that extends into next year is still a risk. It would delay the housing recovery and push nonresidential construction into recession mode instead of the brief dip we now expect.