When It Comes To Job Growth, U.S. Regions Running Hot and Cold
By: Pellham Realtors
June 4, 2008
Written by Mark Heschmeyer
When It Comes To Job Growth, U.S. Regions Running Hot and Cold Forget Red States-Blue States, the Real Tale of the Country is Job Growth vs. Job Losses
The more than a year-long housing slide and resultant credit crunch have now impacted every sector of the country, but at the same time the impact of the economic downturn has been felt more strongly in some regions than in others.
For example, four states -- California, Illinois, Michigan and Ohio -- have accounted for more than half of all of the layoffs in the country this year. And while housing prices have declined across the board, two markets -- Dallas and Charlotte -- continue to defy the trend and have posted two consecutive periods of price increases.
In this article, CoStar Advisor takes a look at some of the fundamental data driving the economy (commercial real estate leasing and sales activity, jobs, population, housing prices and employment productivity) on a regional basis. We've examined statistics from the U.S. Department of Commerce, the National Association of Realtors, the Office of Federal Housing Enterprise Oversight, the Federal Reserve, Standard & Poor's and Moody's to layout the status of cities, states and regions across the country.
CRE Conditions
Commercial real estate conditions are uneven across the country and vary notably in some areas, according to the National Association of Realtors and the Federal Reserve.
"It's just as important to understand local market variations in commercial real estate as it is in the residential sector because local conditions can vary considerably," said Lawrence Yun, NAR chief economist. "Commercial fundamentals are good, but investment has been hurt by the credit crunch - investment in the commercial sectors decelerated in the first quarter after setting a record in 2007."
Overall job gains are slowing, but retail employment has been weak since the beginning of this year, construction jobs have been trending down since the beginning of last year, and manufacturing jobs have been trending down since the start of the decade, Yun noted.
"On the other hand, professional business service jobs have been rising since the middle of 2003, and that supports demand in the office market. Wholesale trade jobs have trended up since the middle of 2004, reflecting stronger international trade conditions," Yun said.
The Federal Reserve reported that commercial real estate markets were generally reported to be steady or softening in most areas.
Weaker conditions in the rental market were reported in: New York, Philadelphia, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, and San Francisco.
On the other hand, the leasing market was found to be steady in Boston, Kansas City and Dallas.
Reports on commercial development were mixed with activity having weakened in the Philadelphia, Atlanta, and San Francisco Districts, but having increased in the Cleveland, Chicago, Kansas City and St. Louis districts.
However, sales of commercial properties were generally indicated to be sluggish across the country, while prices were said to be under downward pressure.
Labor Markets
In the first quarter of 2008, 188,326 workers lost their jobs, according the U.S. Department of Commerce.
The highest number of separations was in the East North Central, with 63,758, followed by the Pacific, with 59,012. Extended mass layoffs in the East North Central division were largely in transportation equipment manufacturing.
California recorded the largest number of worker separations (55,469), followed by Ohio (19,420), Illinois (17,771), and Michigan (14,149). These four states accounted for 56% of total.
That trend continued in April. California recorded the highest number in April with 28,172, followed by Michigan (11,156), New York (7,539), and Pennsylvania (7,506).
Among the 369 metropolitan areas, the Los Angeles metro area reported the highest number of job losses (11,454) in the first quarter of 2008. Next were the Chicago metro area with 7,746 and the New York tri-state area with 5,660.
On the plus side, the top 23 metro areas have seen gains of 34,000 jobs year to date, according to Citigroup Investment Research. Houston (+3.1%), Dallas (+2.2%) and Seattle (+2.1%) posted the strongest job growth year-over-year. Detroit (-2.4%), Orange County (-1.4%) and Riverside (-1.3%) reported the weakest job growth.
Houston and Dallas are expected to generate the strongest job growth in 2008, up 2.8% and 1.6% respectively driven by the recent run up in oil prices. Seattle should also be strong, up 1.5% as the market benefits from little financial/construction job related exposure. Atlanta, Denver and Washington, DC, were also expected to outpace the U.S. average, up 0.8% to 0.9%.
Two thirds of the top 23 metro areas; from the New York metro, Philadelphia and Boston in the Northeast, to Florida, Chicago, Las Vegas, Phoenix and California are expected to generate job growth at less than the U.S. average in 2008.
Office employment within the top 23 metro areas was up 0.2% while the aggregate U.S. office employment was up 0.3% year-over-year. Six office markets - Houston, Dallas, Denver, Seattle, New York and Boston- posted increases of at least 1% year-over-year.
Industrial employment in the top 23 metro areas was up 0.8% year-over-year, multifamily employment was up 0.6% and retail employment was up 0.5%.
The Federal Reserve reported some weakening in the job markets in its New York, Atlanta, Chicago, St. Louis, and Minneapolis districts. Cleveland reported flat employment levels. Boston and Kansas City indicated modest increases in employment.
Despite the general softening in their markets overall, Atlanta and Chicago noted scattered shortages of skilled workers in various service industries. Dallas reported relatively tight labor market conditions overall and cited shortages of managers and engineers. In the financial services industry, some weakening in employment trends was reported in the New York, Chicago and St. Louis Districts, and San Francisco noted job losses in firms servicing the real estate industry.
Home Prices
U.S. home prices fell in the first quarter of 2008 according to the Office of Federal Housing Enterprise Oversight (OFHEO)'s seasonally adjusted, purchase-only house price index. The index, which is based on data from home sales, was 1.7% lower on a seasonally adjusted basis in the first quarter than in the fourth quarter of 2007.
This decline exceeded the 1.4% price decline between the third and fourth quarters of 2007 and is the largest quarterly price decline on record. Over the past year, prices fell 3.1% between the first quarter of 2007 and the first quarter of 2008. This is the largest decline in the purchase-only index's 17-year history.
According to OFHEO:
Prices fell in the latest quarter in 43 states.
Eight states exhibited quarterly price declines of more than 3% and two states -- California and Nevada --saw prices decline more than 8%.
Every Census division experienced a price decline in the latest quarter. Prices were weakest in the Pacific Census Division, which experienced a 5.9% price decline in the quarter.
The states with the greatest price appreciation between the first quarter of 2007 and the first quarter of 2008 were: Wyoming (6.3%), Utah (5.6%), Montana (4.9%), Texas (4.7%), and Alabama (4.5%). The states with the sharpest depreciation for the same period were: California (-10.6%), Nevada (-10.3%), Florida (-8.1%), Arizona (-5.5%), and Michigan (-3.1%).
Of the 20 ranked cities with the greatest price declines over the latest four quarters, all but one (Las Vegas-Paradise, Nevada) were in California or Florida.
The metropolitan statistical areas with the greatest price appreciation between the first quarter of 2007 and the first quarter of 2008 were: Houma-Bayou, LA (11.2%), Grand Junction, CO (9.1%), and Wenatchee, WA (8.0%). The metro areas with the sharpest depreciation for the same period were: Merced (-24.7%), Stockton (-21.5%), and Modesto (-21.0%), all in California.
Standard & Poor's in its S&P/Case-Shiller Home Price Indices, reported that Dallas and Charlotte were the only two metro areas to provide positive returns in April.
"For the first time in as many months, we finally saw monthly price appreciation in two of the metro areas - Charlotte was up 0.2% in March over February, and Dallas was up 1.1%," said David M. Blitzer, chairman of the Index committee at Standard & Poor's.
Overall, the markets that grew the most during the recent real estate boom are the ones that are leading the current decline.
"The steep downturn in residential real estate continues," Blitzer said. "There are very few silver linings that one can see in the data. Most of the nation appears to remain on a downward path, with 19 of the 20 metro areas reporting annual declines, and six of those now at negative rates exceeding -20%. Looking closely at these returns, you can see that 15 of the metro areas are also reporting record lows, and 11 are in double digit decline, with Chicago being the latest metro area to join these ranks. The monthly data paints a similar picture, with 18 of the metro areas reporting at least seven consecutive months of negative returns."
Declines or downward pressures in selling prices were specifically reported in the Boston, New York, Philadelphia, Richmond, Atlanta, Chicago, Minneapolis, Kansas City, and San Francisco districts, according to the Federal Reserve. In particular, New York and San Francisco noted some incipient price declines in areas that had previously shown resilience--respectively, New York City and the Pacific Northwest, as well as Utah. On the other hand, the Cleveland District noted some stabilization in home prices.
Outlook
Moody's Economy.com has produced a new publication that takes a longer-term look at metro areas across the country. Moody's Metropolitan Comparative Advantage examines the structural factors that determine each metro area's comparative advantages for long-term growth.
These comparative advantages are separate from the business cycle. At any time, an area's long-term advantages can be overwhelmed by current conditions of the business cycle, Moody's said. But as business cycles rise and fall with shifts in industrial trends, business investment and technological change, each metro area's long-term comparative advantages will help shape its response as each new business cycle takes hold.
Looking at population growth, Moody's said, the country's fastest growing metro areas are highly concentrated in an arc that encompasses much of the West, and extends to the Southeast and up toward the Middle Atlantic.
In the West, rapid population growth is concentrated inland, where costs are much lower than on the coast. In Texas, growth is fastest along the major transportation corridor from Mexico to Dallas. In the Southeast, the fastest population growth is along the Interstate-95 corridor, in coastal areas that are expanding as second-home and retiree communities, and in some inland mountain areas. But there is a great divide between the rapidly growing areas on the coastal plain and those along the Appalachians or west of the mountains.
Those metropolitan areas with little growth are concentrated in the Northeast and the industrial Midwest: Michigan, Ohio, western Pennsylvania, upstate New York and southern New England have had very little population growth over the past five years. Similarly, parts of coastal California have weak population growth.
Looking at employment growth, Moody's said the pattern of rapid growth across much of the West and South is a familiar one. The industrial Midwest and parts of the Northeast are generally the weakest, with little or no job growth. The greatest mix is in the Southeast, where some overperformers and underperformers are practically neighbors.
However, the regional patterns of productivity growth are less obvious than absolute job growth. Much of California appears to have enjoyed good productivity growth over the past five years.
Elsewhere, some of the smaller Plains metro areas, particularly in Iowa, Nebraska and Oklahoma, are thriving.
Looking at the cost of doing business, Moody's said the South maintains its lead. Nearly the entire region, excluding Florida, has business costs at or less than the national average. Notably, Atlanta and most of Texas' major metro areas are not below average.
The pattern in the Midwest is more mixed. Business costs, as measured by unit labor costs, energy costs, the tax burden, and office rents-remain mostly average throughout most of Michigan, Ohio and Wisconsin.
However, as one moves south of Chicago and west to the Plains, one encounters more areas with low business costs, giving them a further comparative advantage over the long term.
Manufacturing remains concentrated in the Midwest and Southeast, Moody's said. Although, all four regions have seen their reliance on manufacturing employment fall over the past 20 years.
The regional pattern of office jobs focuses on the larger metro areas, although some smaller areas also have high concentrations, Moody's said. Those with the highest share of office employment-defined generally as financial services and business and professional services-include the Washington, DC. area, Tampa, San Francisco, and New York. But a number of small metro areas are top-ranked, including Danville, IL; Warner Robins and Hinesville, GA; Bremerton, WA; Bradenton-Sarasota, FL; Bloomington, IL; and Des Moines, IA.