San Jose has been hit hard by the effects of the sub-prime mortgage meltdown. The unemployment rate is higher than all but five of the fifty largest metro areas in the country, due to a 4.4% year-over-year drop in employment.

Driven primarily by an 82% drop in residential building approvals, construction employment has dropped by 15.5% over the past year. In addition, year-over-year employment in financial services is down by -6.8%, followed by trade and transportation services (-6%), professional services (-5.2%) and manufacturing (-5.1%).

San Jose’s key industrial driver, the tech sector, has also lost jobs over the past year. However, the 4.3% year-over-year decline in information services employment in April pales in comparison to the 20% job drop the industry experienced in the wake of the bursting “dot com” bubble in early 2000.

Over the near term, the San Jose economy will probably see a further increase in its unemployment rate as its rate of job growth continues to lag behind the growth of its labor force. Moreover, the metro area’s rate of recovery will be hobbled by the fact that, according to Property and Portfolio Research, it has the highest living costs and the second highest business costs among the 54 largest U.S. metro areas.

Having said this, there are tentative signs that San Jose is starting to recover. In its June “Help-Wanted OnLine Data Series,” the Conference Board reported that the number of online advertised job vacancies in San Jose has moved steadily higher since March.

In addition, according to the Silicon Valley Business Journal, home sales in San Jose are up 11.5% year over year in April. Although median home prices are still down significantly (-34.1%) in Santa Clara county, pending home sales in the month increased by 6.7%, their largest monthly jump in eight years.

Employment Growth - San Jose CA vs Total U.S.

U.S. Bureau of Labor Statistics/Chart: Reed Construction Data - CanaData.