by Calculated Risk on 3/03/2007 06:33:00 PM

Looking forward to the employment report next Friday, I'm expecting to see a significant decline in residential construction employment.

Click on graph for larger image.

This graph shows starts, completions and residential construction employment. (starts are shifted 6 months into the future). Completions and residential construction employment are highly correlated, and Completions lag Starts by about 6 months.

Based on historical correlations, it is reasonable to expect Completions and residential construction employment to follow Starts "off the cliff". This would indicate the loss of 400K to 600K residential construction employment jobs by this Summer.

Dr. Asha Bangalore suggests we also look at the YoY change in nonfarm employment.

The YoY change in employment has already started to decline, and will probably decline more during the coming months. This could be a mid-cycle slowdown, as happened in the mid-'80s and mid-'90s, or it could be the prelude to a recession. Employment is generally considered a coincident indicator for the economy, so for now the focus will be on residential construction and retail employment.

The housing bust started in San Diego before most other markets. So it is interesting to see what is happening to the job market in San Diego (hat tip: Mozo Maz) from the San Diego Union: County unemployment hits a six-month high

... significant were the cuts in the real estate industry, continuing a five-month decline. January's job cutbacks included 2,500 construction workers, 700 real estate workers and 1,100 workers at furniture and home-improvement stores.

“The housing sector is really starting to have an impact on our overall year-to-year job numbers,” said Alan Gin, economist at the University of San Diego.

Gin worried that the real estate downturn is affecting the retail market. From January 2005 to January 2006, 2,500 retail workers lost their jobs, mostly in department stores.

“When you've got fewer people working in construction and fewer people buying homes, you've got fewer people shopping in the community, and that can translate to fewer retail jobs,” Gin said.
...
Howard Roth, chief economist for the California Department of Finance, ... said the slowdown is having an impact on the state's income tax revenue.

In January, the state took in about $8 billion in income taxes – $1 billion less than previously forecast. Roth said that part of the drop was due to declines in the money earned by real estate brokers and professionals in related industries.

The report next Friday should be interesting.