In my analysis of the local job market I’ve long singled out what I referred to as the “housing bubble beneficiary sectors.” As the name implies, these industries enjoyed huge growth as a direct result of San Diego’s housing bubble. They were, in no particular order:
- Construction, which grew enormously as a result of the scramble to build to homes.
- Finance, a sector which includes real estate and which benefited from vastly increased real estate and mortgage transactions.
- Retail, which boomed as San Diego home owners cashed out their ever-growing home equity to finance spending sprees.
These industries flourished as the housing bubble inflated earlier in the decade, eventually becoming bloated well beyond what a normal, non-bubbly economy would call for. I looked at this topic in a 2006 article in which I tried to relay how dependent San Diego’s economy had become on the real estate bubble. That things were out of balance was apparent in the rate at which the bubble sectors had grown during the decade to date: construction by 38 percent, finance and real estate by 18 percent, and retail by 10 percent. For comparison, the rest of the economy had grown only 6 percent over that same period. The housing bubble sectors accounted for 49 percent of all San Diego job growth during those first six years of the decade.
Predictably, the swollen bubble sectors deflated right along with the housing bubble itself. And while much of economy suffered, the bubble sectors took the brunt of it. In this article I will take a closer look at how much these three sectors contributed to the region’s multi-year job loss trend in comparison to the rest of the region’s industries. Just for kicks, I am also going to break out the government sector because it accounts for a big chunk of local employment (19 percent as of June 2010) and, unlike the private sector, its ups and downs are not strongly affected by the business cycle.
This first graph of year-over-year employment changes should look fairly familiar, but I’ve changed it a bit to distinguish the housing bubble sectors (as a group), the non-bubble private sector, and government.
Government clearly didn’t contribute much, if anything, to job losses over the period in question. So let’s focus on the private sector, where all the losses took place. While the housing and credit bust might have been the epicenter of the economic crisis, there was a fairly lengthy period in which the private sector actually shed jobs faster than the three bubble beneficiary sectors.
However, the bubble sectors had begun to shrink long before the rest of the economy. This next graph portrays the overall impact on employment by measuring the cumulative job losses in the different sectors starting when the recession officially began in December 2007 and ending in June 2010. (Some minor seasonal issues results from using a December starting point and a June ending point, but they are insignificant given the timeframe and scope of employment changes involved).
The graph — which incidentally doesn’t even account for the fact that the bubble sectors had already started to shrink before the recession began — makes it clear that the bubble sectors’ loss of 60,200 jobs accounted for a comfortable majority of San Diego job losses since the recession began.
But the scope of the adjustment endured by the bubble sectors only becomes clear when viewed in terms of the sectors’ collective size. At the start of the recession, the housing bubble beneficiary sectors employed 24 percent of all San Diegans with jobs — yet they accounted for 62 percent of jobs lost since that time.
Another way to look at job losses in terms of sector size is to measure the percent change in the size of each job category.
Government, largely unscathed by the downturn, actually grew by almost a percent since the start of the recession. The non-bubble private sector fared a lot worse, shrinking by 5 percent. But employment the housing bubble beneficiary sectors was pummeled for a 19 percent loss during the same period. The difference between the orange line and the red line in the above chart is the difference between an area of the economy suffering from a severe business cycle downturn and another area being cut down from a size it never should have reached in the first place.
— RICH TOSCANO