The Budget Control Act's automatic spending cuts,
allowed to roll into effect by Congress last week, risk stalling the relatively
positive trends in the employment market. However, the full impacts of the
sequester will not be fully understood for at least several months. On the
positive side, recent gains in home values and new home construction are strong
proxies for continued strength in the job market.
The unemployment rate
typically follows housing expectations and trends. Unemployment is correlated
to home prices and housing starts and high unemployment is commonly associated
downturns in these indicators. The relationship between housing and employment
can be somewhat of a chicken and the egg enigma - housing will recover when the
job market recovers, but the job market cannot recover without a rebound in housing.
But, given the stubbornly high unemployment figures and the improving housing
market it appears that in this recovery, housing has rebounded first
and will do its fair share to bring improvements to the job market.
Last week the provisions of
the sequester went into effect when Congress failed in negotiations to agree on
a budget plan. Although the sequester implements longer-term reductions in
spending, the automatic spending cuts threaten to deal immediate short-term
blows to the United States (US) economy. While the impacts of the sequester may
not be seen as early as the release of the upcoming ADP Employment Report this
Wednesday, it will likely reflect a worsening or flattening trend in the jobs
market over the coming months.
In the case of the
sequester, housing indicators may actually help to lift the job market.
Property values increased nearly 10 percent year-over-year in January and that
has a direct and positive correlation historically with employment data. Strong performance in residential
construction, which is a leading indicator of job growth, has nearly doubled
year-over-year and will continue to drive job creation. As evidence,
construction jobs have been up nearly 20 percent year-over-year. Moreover, a
healthy housing market has the ability to create nearly three million direct
jobs including real estate professionals, skilled labor jobs, and utilities specialists.
Employment training programs
will see a $460 million reduction in 2013. Employment assistance services will
also be cut. The youth employment
and dislocated workers programs funded by the Workers Investment Act will cut
off services to nearly 30,000 dislocated workers and 13,000 youth workers in
2013. Notably, dislocated workers
make up 40 percent of the unemployed population. These workers will more than
certainly be casualties of the sequester. If these individuals continue to
struggle to gain employment and loose important training resources, they will
keep the unemployment rate above historical norms.
In addition to cutting
services, the sequester will likely risk approximately 48,000 healthcare jobs,
470,000 manufacturing jobs and 610,000 federal jobs.
Whereas the Federal Reserve
originally estimated that unemployment would drop to as low as 7.4 percent in
2013, a study published by George Mason University projects that the sequester
will actually increase the unemployment rate to over nine percent in the
Sequester or not, it appears
that the housing market is on a strong upward trajectory. While the impacts of
the sequester are uncertain, the housing recovery should bode well for
employment tin the long-term.