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Housing's impact on jobs seen spreading

By Nick Zieminski - Analysis

NEW YORK (Reuters) - The weak housing market is starting to affect overall U.S. employment, and job losses that are now limited to sectors like construction will likely spread to other parts of the labor market in coming months.

For builders, realtors and mortgage lenders, the full impact of the downturn may take more than year to work through the system.

Job cuts in real estate and construction rose in the first two months of the year compared with a year ago, according to the outplacement firm Challenger, Gray & Christmas. U.S. construction companies announced 10,000 job cuts in January and February, more than in all of 2005 and 2006 combined.

"The housing downturn that is hitting subprime lenders first is spreading out," said CEO John Challenger, adding that housing-related cuts would probably affect other industries, including retailing. A large round of job cuts were announced this week at Circuit City Stores Inc. (CC.N: Quote, Profile, Research), he said.

"Home building is really taking it on the chin," he said.

Falling home prices in some markets and rising defaults on subprime mortgages have raised concerns that housing problems may spread to mainstream lenders, hurt consumer confidence and affect the broader economy.

About 45,000 jobs were lost last month among specialty contractors, according to the Bureau of Labor Statistics, which attributed part of the drop to winter weather. Employment in residential specialty trades has been declining since February 2006, the BLS said.
Home construction will flatten, and may rebound, by the middle of 2007, said Bernard Markstein, director of forecasting at the National Association of Home Builders. But it will not return to recent peaks, because of excess supply.

Layoffs don't immediately follow slumps, since many builders try to hold on to their skilled workers, or shift them to nonresidential sites, where prospects are brighter. The full impact hasn't been seen yet, Markstein said.

"We expect further declines in employment within the construction industry because nonresidential construction and remodeling is not going to pick up all of the reduction."

A NEW 'HAIRCUT'

The top publicly traded builders on average have so far slashed jobs by 20 to 25 percent, but that's probably just the start, JMP Securities analyst Alex Barron said.

"There seems to be a new round of haircut coming," he said.

"If deliveries are going to be down 30 percent on average this year, then it makes sense to probably cut at least that many people. 2008 will probably be lower than that."

Lennar Corp. (LEN.N: Quote, Profile, Research) Chief Executive Stuart Miller said on Tuesday the No. 3 homebuilder has cut its work force to below 11,500, from above 14,000, over about a year.
This week, the Commerce Department said new home sales fell in February to their lowest level in almost seven years. A separate construction spending report showed building of single-family homes dropped 2.9 percent, the 10th month out of 11 that it fell more than 2 percent.

Some of the industries where one would expect cuts have resisted them so far.

The housing slump has had little impact on the ranks of real estate agents, said Lawrence Yun, senior economist at the National Association of Realtors.

"We have not seen any measurable decline yet, but there is a lag," Yun said. "Perhaps this time next year we'll see some decline in membership."

The current downturn is not as severe as those in the early 1980s and again in the early 1990s, Yun said.

Job cuts among mortgage lenders may soon show up in labor statistics. This month, Countrywide Financial Corp. (CFC.N: Quote, Profile, Research), the largest U.S. lender, said it would eliminate 108 jobs in its wholesale lending unit's subprime division. The subprime mortgage unit of GE, WMC Mortgage, cut 460 jobs and later announced further, unspecified cuts.

Wells Fargo & Co. (WFC.N: Quote, Profile, Research) and Fremont General Corp. (FMT.N: Quote, Profile, Research), are also laying off hundreds of workers. The Department of Labor will report March payroll data on April 6.

One effect of the slump is that workers whose homes have lost value are reluctant to sell, and are less willing to move for a job.

"There are a lot of workers who have these subprime loans, and when they lose their jobs they're less flexible, less mobile," John Challenger said. That makes the overall labor force less flexible, adding risk to the economy, he added.

For more news on the subprime crisis, see (ID:nN16195443: Quote, Profile, Research)

(Additional reporting by Ilaina Jonas)

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