Employment growth in Utah County slipped into negative territory for the first time in six years, since the fallout from the dot-com sector bust and the Sept. 11 terrorist attacks took their toll in 2002.

The main culprit is a continued deterioration in the housing market. The slowdown in construction, which accounts for about 9 percent of the state's total employment, is so significant that it is dragging down the entire state's overall job growth including that of Utah County, according to a report released Tuesday by the state Department of Workforce Services.

The Utah County economy shed 1,200 jobs in the year ended in June, which totaled a negative 0.6 percent growth, as the housing crisis deepens and inflationary pressure from high gas and energy prices weigh on the national and local economy.

"In June 2007, Utah County had a 6 percent job growth due mostly to the housing boom. You're now at minus 0.6 percent. We haven't seen the full impact of the housing downturn and high gas prices on retail trade, leisure and hospitality and the transportation sectors yet. Hopefully, we'll hit the bottom late this year or early next year," said Mark Knold, chief economist for Workforce Services.

"If the housing crisis worsens, Utah County's employment rate could drop 3 percent to 6 percent in the next few months," he said. Statewide, the construction sector shed 11,000 jobs in the year ended June, but another 11,000 jobs may be lost in the next year because of the lack of housing activity, Knold said.

But is it a recession when job growth goes into the negative, and it's mainly one industry that is causing it?

"I think that if the job losses starts to bleed into other industries, then it's a definite recessional environment," he said.

At the height of the last recession, Utah County lost 4,600 jobs in March 2002 from a year earlier, with an employment rate of minus 3 percent, he said.

Statewide, employment growth has also slowed, falling below 1 percent for the first time in six years. The state's economy added 11,500 new jobs in June from a year ago, with a growth rate of 0.9 percent. Nationally, the employment rate in June totaled a negative 0.1 percent.

Knold said he wasn't optimistic about the prospects of the Utah housing market rebounding in 2009. Not only are tighter lending requirements in the wake of the subprime meltdown making it harder for potential buyers to qualify for home loans, homeownership is apparently out of reach for many Utahns after years of price runups in the recent housing boom.

Not surprisingly, even as the construction industry heads into the traditionally busy summer period, the workload hasn't really picked up this year. And while Utah's population growth is expected to remain strong, housing prices need to fall further in light of the now-higher lending costs and weaker buying power, he said.

Still, a silver lining remains, Knold said.

Utah's unemployment rate may have climbed to 3.2 percent in June from 2.7 percent a year ago. But that's still well below the national jobless rate, which is at 5.5 percent.

"You'd think the disappearance of 11,000 construction jobs would have had a bigger impact on our unemployment rate, which should have gone up near 4 percent by now. But it hasn't," Knold said. "That could be because much of the construction labor force is transitory and therefore aren't drawing down on unemployment benefits and burdening the social systems."

At its worst in 2002, the unemployment rate in Utah was around 6 percent.

Meanwhile, the effects of a slowing housing market are starting to be felt by financial services and manufacturing industries in Utah County and statewide. The financial services sector in Utah Valley, which includes mortgage financing and title services companies, shed 100 jobs in June from a year ago as fewer homes are being built and sold.

High gas prices and the slowing national economy have also taken a toll on manufacturing jobs in Utah County -- that sector shed 300 jobs in June from a year ago.

Fortunately, robust job growth in education/health services and government services are shoring up the local economy, adding 6,200 new jobs and 4,300 jobs statewide, respectively. In fact, as the economy weakens, demand for government services and public assistance increases. More people also tend to apply for jobs in the education system, or go back to school for further studies to improve their marketability when the economy recovers.

Statewide, other sectors including trade, transportation and utilities and professional and business services continue to hold their own, albeit growing at a slower pace. The trade, transportation and utilities sector showed year-over-year growth of 4,600 new jobs in June, while professional and business services grew by 3,300 new jobs.