Declining export employment weakens housing demand

If high-paying export industry jobs are eliminated because of the rising dollar, then home sales will suffer due to diminished demand.

Unemployed-Man-PosterThe fundamentals of housing demand are job and wage growth. Lenders and the federal reserve can manipulate borrowing costs to impact prices, and they can manipulate mortgage qualification standards to create more temporary homeowners, but this chicanery does not represent fundamental support. The powers-that-be already manipulated rates as far as they can push them, and the endless pleas from realtors to lower lending standards fall on deaf ears. The props are played out.

Endless market props can mask a weak market for a time, but for the housing market to really improve, the economy needs to produce more jobs that pay well enough to buy homes. Eventually, the housing market will need to stand on its own.

A durable housing recovery based on improving fundamentals would be hard to deny, and it wouldn’t need so many artificial boosts. A real recovery would be characterized by surging new home construction and steady gains in sales and prices commensurate with strong job growth and rising incomes. If the economy stops producing high-paying jobs, housing demand necessarily weakens.

Unfortunately, the rising value of the dollar is hurting export employment, and if the federal raises rates, it’s likely the dollar will get even stronger exacerbating a problem with dwindling export employment.

This Drag on U.S. Job Growth Isn’t Going Away Anytime Soon

Export industries may keep losing about 50,000 jobs a month into mid-2016


Sho Chandra, October 16, 2015

Employment is taking a dive in industries that sell a lot of U.S.-made goods abroad, and things could get worse before they get better.

The double whammy to exports from the stronger dollar and cooling overseas markets was bound to hit employment in the world’s largest economy. JPMorgan Chase & Co. has put numbers to the damage.

Export-oriented industries have been losing about 50,000 jobs a month for most of this year, after adding 9,000 a month on average in 2014, according to JPMorgan economist Jesse Edgerton. Recent manufacturing surveys hint the impact could worsen, and the employment erosion may extend into the first half of 2016, he predicts.

In effect, that would mean private payrolls growth takes a step down to around 150,000 a month, from the booming 250,000-plus average of 2014.

export employment

“Employment is declining in industries exposed to exports, and we haven’t seen any sign the decline is slowing down,” Edgerton said. “The drag from job losses in export industries will linger on for some time at least.”

Considering export-oriented jobs are among the better paying ones, that’s a pretty sobering forecast. U.S. jobs supported by goods exports, for example, pay as much as 18 percent more than the national average, according to government estimates. At a time of increased concern that growth is losing momentum, a strong labor market backed by jobs that pay well is key to sustaining consumer spending, the biggest part of the economy. …

We are losing exactly the kind of jobs necessary to buy houses.

Trends in the top four industries with the largest export share — transportation equipment excluding motor vehicles; machinery; computer and electronic products; and primary metals — offer another reason for concern, Edgerton said. Payrolls have been slowing for decades in capital-intensive manufacturing businesses that dominate exports. So there’s little reason to expect export jobs will see a return to positive territory.

exporter job growth

One consolation is the job losses are “pretty much confined” to exporters, while “plain vanilla” industries selling to U.S. consumers have been largely shielded, Edgerton said. He found payrolls at non-export employers, typically service providers, are currently posting an average monthly gain of 203,000 . While that marks a downshift from 296,000 as recently as June, it’s within the 150,000 to 300,000 range seen since 2013.

At least the jobs in McDonalds and Wal-Mart are safe, right?

What the housing market needs to get back on track is growth in jobs and incomes. People who get high paying jobs either form new households or make move-up trades, but the jobs created need to be of high quality. Creating low-paying or part-time jobs may pad the government stats, but they do little to stimulate the housing market. Although the job market has been steadily improving since early 2010, the rate of job growth has been relatively weak when compared to previous recessions, and the quality of these jobs has been suspect at best.Janet_Yellen_easy_Job

In a housing market where lenders, the federal reserve, and government officials don’t conspire to artificially inflate house prices, the primary driver of prices is job and wage growth that leads to new household formation. If businesses expand and create new, high-paying jobs, those new employees take their new wages and bid up the price of available housing alternatives. If the the jobs are low paying, the new employees will bid up rental prices or occupy new rental units. If the jobs are high paying, the new employees will bid up the prices on nearby residential real estate.

In an economy that sheds higher paying jobs, like those in export industries, the housing market suffers. If 2016 has disappointing sales numbers, the disappearance of export jobs may be the culprit.

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