Labor Market Trends in the Third Quarter of 2015

Labor Market Trends in the Third Quarter of 2015

Jobs in the education and health services sector and leisure and hospitality sector saw some of the largest year-over-year growth in the third quarter of 2015 while also making up a large share of total jobs in HUD’s 10 regions.

The state of the labor market plays a large role in various housing market trends. The decision to rent or own a home is largely driven by factors related to job and income prospects for individuals and households. As a result, examining the labor market and overall trends in job sectors and wage growth is important to get a better sense of home sales and rental market conditions nationwide as well as the variations that may occur in different regions across the country.

The national unemployment rate peaked at 10 percent in October 2009, while total nonfarm payrolls (the statistic used to measure job trends in the United States) hit a post-recession low of 129.6 million in February 2010. Since then, job growth has steadily increased. As of the third quarter of 2015, the U.S. unemployment rate was 5.2 percent, and nonfarm payrolls increased 9.8 percent to 142.4 million from their low in February 2010. Although we have been seeing slow and steady job growth during the past 6 years, there is much discussion of what kind of jobs are being created, and whether these jobs provide the necessary wages and security that are needed to improve home buying trends and alleviate unaffordable rents.

In HUD’s 10 regions, jobs in the education and health services sector and leisure and hospitality sector saw some of the largest year-over-year growth in the third quarter of 2015 while also making up a large share of total jobs in the regions. For instance, in Region 8: Rocky Mountains, education and health services jobs and leisure and hospitality jobs saw a year-over-year increase of 3.8 percent and 4.6 percent, respectively, constituting 12.9 percent and 12.0 percent of total jobs in the region. Similarly, in Region 6: Southwest, these job sectors saw 3.94 and 4.44 percent year-over-year growth, respectively, while making up 13.9 and 10.7 percent of the region’s total jobs. Although high job growth in these sectors is a positive sign during a time of continued economic recovery, many researchers and policymakers are concerned about income trends in the jobs that are being created.

Education and health services jobs, for example, had national average hourly earnings of $25.27 and an average of 32.87 hours weekly in the third quarter, which results in an average annual income of $43,193.81. Leisure and hospitality jobs had an average hourly wage of $14.38 and an average of 26.30 hours per week in the third quarter, resulting in an average annual income of $19,661.53. These figures are much lower than the national median household income of $53,657.

The trends in these service-producing sectors, both in job and income growth, highlight the concerns that many have in the post-recession economy. But moreover, these trends highlight changes in the U.S. economy over the past few decades as we have transitioned from a goods-producing economy to a service-producing economy. Historically, goods-producing sectors such as manufacturing provided good wages that supported a middle-class lifestyle, including a high homeownership rate. Manufacturing jobs had an average hourly wage of $25.36 in the third quarter of 2015 and an average of 40.73 hours per week, resulting in an average annual income of $53,715.86. However, the only regions in which manufacturing made up more than 10 percent of total jobs in the third quarter were Region 5: Midwest and Region 7: Great Plains, where manufacturing’s share of total jobs was 13.0 percent and 10.9 percent, respectively. Even in these regions, the growth in manufacturing jobs was muted, with a 1.5 percent year-over-year increase in the Midwest and a 0.2 percent decline in the Great Plains. The data show that jobs that once provided good wages that sustained higher homeownership rates continue to decline.

The trends exhibited in these regions mirror some of the trends throughout the country. While each region has unique job composition trends, the sectors seeing the largest growth are typically those similar to the education and health services sector and the leisure and hospitality sector, which have muted wage and income growth. Without improvement in wage growth in these job sectors, or without growth in higher-paying job sectors, the housing market recovery could be affected. There may be a continued path of lower homeownership rates and a higher likelihood for households to rent. Although some forecasters believe that as the labor market improves, wage growth will follow, it is unclear whether this will actually happen. It is therefore imperative to observe the labor conditions highlighted in U.S. Housing Market Conditions to understand home sales and apartment market trends in the quarters to come.