State could start losing more jobs by early 2009 if housing market worsens

Grace Leong

The Beehive state posted job gains in May, but its growth continues to slow in tandem with the housing downturn. If the construction market continues to weaken, the state's economy could start to shed more jobs by early 2009, a state economist warned.

Utah, which has so far outpaced the rest of the nation in job creation, added 17,900 new jobs in May, up 1.4 percent in total employment from a year ago, according to a report released Tuesday by the state Department of Workforce Services. That's down from a peak of 5.4 percent growth in June 2006 when the economy added 54,000 jobs.

But the days of continued -- albeit slowing -- job gains may be numbered.

Mark Knold, chief economist for Workforce Services, revised downward his projections for Utah's job market for the year in light of Tuesday's report, which showed the biggest job losses posted in the state's construction sector in nearly two decades.

"A few months ago, when I predicted a 1-percent growth rate for the year, I saw more risk for downside than upside. I'm not expecting job growth to go below zero, but it depends on how much more bleeding continues in the housing market," Knold said. "There's a chance Utah's job rates can go into negative territory by early 2009 because we're not seeing a return to life in the new-home building market even tough it's spring, which is traditionally when construction is supposed to pick up."

More construction job losses seen

Construction, which accounts for about 9 percent of the state's total employment, lost 7,600 jobs in May from a year ago -- the worst job loss the industry has seen in 18 years. That compares with 15,000 construction jobs created in May 2007. At its height in August 2007, that sector had a total of 109,600 jobs statewide. It has since dropped to 97,600 in May.

And that situation is about to get worse, with the economy projected to lose 15,000 construction jobs by late summer, Knold said.

"The national credit and mortgage predicament has translated into the slowest new-home building market in Utah in almost 30 years. Many residential construction workers were let go during the winter months when the workload naturally slackens. So the housing slowdown that began last fall wasn't fully exposed until now," he said.

"The number of new homes permitted this year to date is so low that Utah is not seeing the spring rehiring surge that normally occurs," he said. Utah County could lose 3,800 construction jobs by late summer, almost double that of Salt Lake County's projected losses, because Happy Valley's real-estate boom in recent years was fueled mostly by housing construction.

"Any commercial construction Utah County has isn't enough to take the bite from the downturn in residential construction, especially since some of those commercial projects are now on hold or delayed," Knold said. "Also, those residential workers aren't necessarily absorbed by the commercial sector because residential workers' skills don't readily transfer over to that sector."

He said the housing market is still in the doldrums because of an "imbalance in borrowing costs and housing prices."

"There's been a 50-percent run-up in housing prices in the last five years when interest rates were low. But rates have jumped, and income levels are only up about 20 percent, and high gas and food prices don't help either. There are lots of negative headwinds hitting consumers," Knold said.

Housing slump hits other industries

The effects of a slowing housing market are also felt by retail and financial service industries.

Retail, which accounts for 18 percent of total employment, added 5,700 jobs in May from a year ago. But retail job growth is expected to slow as high gas, energy and food prices and the housing slump dampen consumer spending.

Knold expects the financial-services sector, which showed no job growth in May, to start shedding jobs in the coming months as the housing slump starts to take its toll on mortgage financing and title insurance companies.

"When spring comes and housing hasn't picked up steam, all the more reason to not hire or to let people go," he said.

According to Tuesday's report, the state's unemployment rate in May was 3.2 percent, up from 2.6 percent a year ago. About 44,000 Utahns were unemployed last month, compared with 35,000 last May.

Sky-high gas and diesel prices are seen testing job growth in other industries in Utah including manufacturing, transportation, and potentially, leisure and hospitality.

Manufacturing, which accounts for 10 percent of total employment, added 1,500 jobs in May from last year. But that growth is slowing as layoffs pick up and the industry feels the stress of strained consumers and high energy and transportation costs. Even though the weak dollar -- which makes U.S. goods more affordable overseas -- has helped many U.S. exporters nationwide, the state isn't able to tap that advantage as much because it isn't a large international export manufacturing base, Knold said.

For the first time in six years, trucking businesses shed 300 jobs in May from a year ago, pinched by high diesel and fuel costs and cutbacks in retail deliveries.

The outlook for leisure and hospitality, which accounts for 9 percent of total employment in Utah, is also cloudy.

The tourism industry posted 3,700 new jobs in May from a year ago, but those gains could be cut by rapidly escalating gas prices and high airfares, as well as weakness in the Las Vegas tourism market. Las Vegas is typically the gateway through which tourists enter the southern Utah area to enjoy its national parks and ski resorts.

"Since Vegas tourism has hit a flat spot, what does that portend for Utah this summer and fall? We may lose some long-distance travelers, but will it be made up for by short-distance travelers from New Mexico? Or will gas prices scare them away?" Knold asked. "In southern Utah counties like Grand and Garfield counties, the leisure and hospitality sector accounts for 30 percent of their employment base. If fuel prices and airfares stay at high levels, how will this affect those towns and our ski resorts?"