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The Jobless Recovery in the Housing Market

By Sara Potter, CBE, VP, Markets Analysis
Dec 11, 2012

Housing starts and total construction have been moving upward since early 2011, with housing starts poised to post the best annual performance this year since 2008. The S&P/Case-Shiller monthly composite home price indices have risen for the last four months, providing further evidence of a housing market recovery.

FactSet clients: launch this chart

Unfortunately, this increase in building activity hasn’t translated into construction jobs. Historically, construction jobs average about 5% of total employment; due to the stagnation in construction employment following the housing market bust, this ratio has now fallen to 4.1%, its lowest level since the 1940s. Despite their small share of total employment, during 2008-2009, construction job losses consistently represented between 15 and 35% of total monthly job losses. 

FactSet clients: launch this chart

While the broader economy and overall employment figures have been in recovery for the past three years, this growth has not been reflected in the construction employment figures, which have remained essentially flat since early 2010. This has caused a drag on total employment figures.

FactSet clients: launch this chart

Why aren’t there more construction jobs? There may be some difficulty in accurately counting construction workers, many of whom are subcontractors who may have moved around during the recession. Many workers may have left the industry altogether.

In addition, it appears that the looming fiscal cliff is weighing on building contractors, many of whom are small businesses taxed at personal income tax rates. Since tax code changes in the 1980s pushed personal income tax rates below corporate tax rates, an increasing number of small businesses are now classified as “pass-through” entities, where the business owners pay the taxes under the individual tax rate. These small businesses could bear the brunt of going over the fiscal cliff.

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