Wednesday, August 22, 2007

A Dimming Employment Picture?

From the WSJ:

Subprime mortgage lender Accredited Home Lenders Holding is no longer accepting new U.S. loan applications and will cut more than half its work force as the company deals with the ongoing credit-market turoil.

The San Diego firm said "substantially all" of its retail lending business, which is made up of 60 retail branches and five retail support locations, "will be effectively closed" as of Sept. 5, affecting 480 positions. Another 490 jobs will be lost at the wholesale operations, which will close 5 of its 10 divisions and cut staff at the other five. About 340 jobs will remain.

Also, staff at Accredited's headquarters will shrink to about 220 from 400 and the company's settlement and insurance-services business "will be substantially reduced." No details on the unit's cutbacks were provided.

Once the moves are completed, the firm's work force will be about 1,000, down from 2,600 as of June 30. Accredited's Canadian operations aren't affected by the restructuring.

This week we've had job cut announcements of almost 21,000 this month -- before this announcement. This is only going to get worse at this point.

Here's the chart of financial services job growth since 2001.

Simply going from recent memory, the first big wave of mortgage problems hit at the end of last year/beginning of this year. Assuming my memory is accurate, that means the effects of these job cuts still aren't showing up on the financial services job results from the BLS. So far we have about an 8-month delay from the cutting of the jobs to the impact on national jobs figures.

The point I am getting to is when will these cuts start to hit the national employment figures? Bulls have consistently cited job growth as a reason for their bullishness. The question is how long will job growth comply with this analysis?

Now lets add in construction jobs. Here's the chart of construction job growth since 2001:

These have been remarkably resilient over the last year's slowdown in residential construction. However, it appears the boom in commercial construction is absorbing the job losses. In the latest GDP report we saw a big jump in commercial real estate development. But with the credit crunch going on, I have to wonder whether or not this trend will continue.

The point is will the employment figures start to get a double-whammy hit from the loss in construction and financial service jobs over the next 6-9 months? Both of these ares are very important to this expansion's job growth figures. If both get hit at the same time, things could get ugly quickly.