Jobs, Jobs, Jobs, Recovery to Crash
Chuck Ponzi April 7th, 2005
OK, my wife had better not see this… I am supposed to be doing my homework right now, but I just had to sneak this one in.
I am tired of hearing all of the people claim that we can’t have a crash while the economy is adding jobs, since the last SoCal bubble coincided with a decrease in employment. I am still not convinced that this was the cause, I still think it was easy credit and speculation last time as well. But, for those ignorant, I present a pretty sobering picture. I got my information from the BLS website for job growth in San Diego over the past 4 1/2 years (Since I think that 2000 or 2001 is pretty close to baseline, this works just fine for me). Just to give you some perspective… The entire SD economy added 69,095 jobs in this time period. Private construction added 14,922 jobs during this time, more than half of which occured in the first half of 2004 (21.6% of all new jobs in SD). While you can see that there is a seasonality to the numbers, 2003 and 2004 are clearly outliers in terms of growth and decline.
What I am trying to say is… a major push of the most recent economic strength in Southern California is based largely on the housing boom which has created a large percentage of the jobs. If we were to return to the levels we saw in 2001 (I believe we will go much lower, but don’t have data to support this), this change will represent an additional 1% unemployment immediately, with a multiplier effect through the economy (I have always heard a 2.5 multiplier used in construction in terms of additional jobs, revenue, etc. from suppliers, salesforce, and loan officers or other related jobs) that the economy experiences as a result of the reduction. It may not seem significant, but major recessions in the US can be measured by 1.5 or 2.0% additional unemployment. A 3.5% reduction would be locally disastrous.
San Diego Construction 
On another note, you may ask why I am so interested in San Diego when I live in Los Angeles. Well, that is going to soon change. I just took an excellent job in San Diego (which has a lower cost of living for renters than LA). My family and I will be moving on April 23rd. Good luck to us all!
Spent my first 7 years of life in S.D. Seems like a great place to live to me! Does this mean you found your dream home or are you going to rent?
Actually, no. I am renting. I measured that I can rent a house for about $1900/month. That same house to buy would require monthly payments of about $5,200 (P.I.T.I)after a $130K down payment. It’s a no brainer, I can rent in perpetuity cheaper than buying.
Holy Batmobile! I wouldn’t pay $5200 for a car, much less monthly mortgage! Hope the move goes smoothly!
Nice to see someone else out in cyberland watching and analyzing the numbers as obsessively as I am! We sold our townhome and left LA in 2003 so my husband could go to law school and we’re hoping to head back out west in 2006. We have 2 kids and my older child will start preschool in Fall 2007. I am willing to wait for a little while but I really want to be in a home by then. Until he graduates next year and gets a job offer, I am just here on the East Coast watching what happens with the housing market…I agree all the indicators look like a reversal is about to happen, but I have been wrong before.
That’s true half the jobs added in California after the 2001 recession are related to construction.
A large number of Californians , about 2% are doing real estate related work.
What happens when this all settles down. All these people become unemployed. CA goes into a recession.
Recession Will Follow
The UCLA ANderson group, who had accurately predicted the 2001 recession, also say CA is about to go into recession.
I also think that a recession will result in population outflow from California. Which will again result in a substantial drop in demand and price of housing.
Good point about contruction employment growth, but you can take this even further by considering the growth in real estate services employement (e.g real estate agents and mortgage brokers). Becoming a mortage broker has become the new career fad. I personally have 4 friends who become mortage brokers in the last 2 years - all of them refugees from the tech bubble.
Just to be clear, I used the traditional “multiplier” effect for the construction industry. The multiplier used was 2.5 times as many ancillary jobs added for each construction job. One thing that most people fail to realized, my esteemed guests aside, is that most ancillary jobs added from construction are white-collar high-income jobs which skews the bias of new income in high-construction areas. Many pundits argue that many of the new jobs are not in construction, but they fail to understand the multiplier effect of high-froth real estate. My guess is, all told, residential and commercial construction were the only thing that sidestepped the economic downturn after 2000. It has only prolonged the recovery by giving a false sense of hope to many. Truth is, we would have massive overcapacity in almost every industry if demand were to slow (after home ATMs are depleted).
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