When will the economy get back to full employment?
During the downturn companies shed some 8.8 million jobs from February 2008 to January 2010. The economy has since created about 3 million. By contrast, state and local government employment peaked in September of 2008 and is still falling. It’s lost some 600 thousand jobs. This makes sense: government employment lags behind private employment.
So where have those jobs gone? Why is this recovery so anemic? Usually, by this time, the economy is accelerating and has fully recovered the number of lost jobs. What’s wrong this time?
A big answer is housing. During the boom, we were building some 2 ½ million new homes a year. That’s dropped to half a million and just stayed there. But normally we build a million homes a year just to cover new households that are forming. Unlike many Western countries, our population is still growing. Add to that replacing old homes that have become decrepit, and we should be building some 1 ½ million new homes a year.
Well, if it takes two people to build a home in a year—or a gang of 12 a year to put together 6 homes—that’s 3 million jobs. Add to that at least one job per home to manufacture, ship, and sell the appliances that go into a house, and you’ve got almost 5 million jobs. That pretty much covers the employment gap remaining in our economy.
That’s why many people have said that housing is the key to the recovery. If we can address the current housing depression—the overhang leftover from the bubble—our economy’s growth would be rather healthy. But we have to get there from here.
Douglas R. Tengdin, CFA
Chief Investment Officer
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