Housing downturn, credit crisis dampening business sentiment

Utah's job growth moderates

Grace Leong

An ongoing slump in residential construction in Utah and a national economic slowdown are taking their toll on the state's once-stellar job market -- which has been on a downtrend for the past few months but still manages to outpace the national growth rate.

According to a report released Tuesday by the state Department of Workforce Services, the number of nonfarm payrolls in Utah grew 3.6 percent, or 44,800 new jobs, in December from a year ago, down from 3.9 percent in November, and a record high of 5.4 percent in June 2006. The rate of job creation was just under 1 percent nationally.

The slowdown in job creation lifted Utah's unemployment rate to 3.2 percent in December, but the state still has one of the nation's strongest economies, and remains well below the nation's unemployment rate of 5 percent.

"It's becoming more noticeable that the Utah economy is coming off its high horse. Employment growth is starting to slow in bigger chunks. The three-tenths of a percentage drop (in Utah's job rate) from last month is the largest movement we've seen since the beginning of 2007," said Mark Knold, chief economist for Workforce Services.

Knold said he expects to see further decline in Utah's job rate, particularly in the first half of the year, with employment growth trending down to the 2 percent range. That's below the state's long-term average of 3.3 percent.

"I don't anticipate Utah falling into a recession, but our economy is going to move to the same general pattern of the U.S. economy albeit at a higher level. We might go from 3.5 percent job growth to 2.5 percent," he said.

"We have a history of riding over national recessions," he said. He cited the state's continued strong population and growing labor force.

The state underwent a recession from 2001 through 2003, which resulted in no job growth during that period, Knold said. "We lost 7,000 jobs between 2001 and 2002 during the dot-com sector bust, but gained some back from 2002 to 2003. So overall, we had a net gain of zero."

Utah's economy is losing steam because the construction sector -- which has been the growth leader for the past three years -- is slowing down due to the tightening in credit and mortgage financing and a sharp drop-off in the number of builders' permits for new home construction in Utah.

That, and a seasonal winter slowdown, lifted unemployment claims in the construction sector to 2,200 in December from 1,300 a year ago.

"Mortgage rates have changed, lending standards have tightened up and housing prices in Utah have appreciated a lot recently. Now that cheap mortgages are gone, and with housing inventory growing, people will have to lower their expectations on what they can sell their homes for," Knold said.

"Springtime is historically when you see housing sales pick up. But if it stays lethargic in spring, then it's not a good thing," he said.

Another potentially bearish factor is a slowdown in temporary staffing services -- a barometer of business sentiment -- for the first time in several years. That industry shed 1.8 percent, or 500 jobs, to 26,200 in December from a year ago.

"Maybe there just aren't enough workers to support that industry and that's why it slowed, because after all, that industry feeds off of detached and idled workers," he said. "Yet at the same time, that could be the first sign that businesses are pulling back and becoming pessimistic."

Several sectors continue to be consistent job generators. Industries in education and health care grew 3.8 percent, or 5,200 new jobs to 144,500 in December from a year ago, while the government sector added 3,700 new jobs, or 1.8 percent to 211,300 jobs in December from a year ago.