As I’ve often said, if you want to gauge the health of the economy, look outside your office window for construction cranes. If you don’t see them, we’re probably not creating a lot of jobs.
Most of the jobs in this economy are service jobs. The “factories” for those services are retail stores, hospitals and, most importantly, offices. So, if we are creating jobs we will need to build a lot of office space, just as we did in the 1980s and 1990s.
So how is the market for office space right now? According to a March report by REIS Inc., one of the largest providers of commercial real estate information and analysis, employers now occupy about 100 million LESS square feet of office space than they did in 2007. That’s a lot of office space. Much of that was vacated during the financial crisis.
But how fast are we absorbing that space now that we are supposedly seeing an economic rebound from the crisis and good job growth? Well, our current rate of absorption of office space is about 15 million square feet a year. At that rate, it would take about six years just to get back to 2007 levels. And that’s when we’re supposedly in an economic “rebound.”
That we have so much extra office space can partly be attributed to cost saving. But it also tells us that we’re just not hiring that many people. If we were, it would show up in the need for construction of more office space.
It also tells us that many of those people we are hiring are not getting particularly good jobs that necessarily require much office space. This is one of those reality checks that makes me wonder just how accurate the job statistics are and just how good those jobs really are.
One bright spot in the economy is healthcare, where there has been almost continuous job growth during and after the financial crisis. This is reflected in continued new hospital and related medical construction. Medical construction isn’t growing much, but it is continuing, which would indicate a steady growth in jobs even if that growth were not accelerating.
However, retail has not been a bright sector and consequently there has been relatively little retail construction. Despite some job growth, manufacturing construction is also slow. That’s partly because there was a huge collapse in manufacturing jobs during the financial crisis and much of the previous 10 years. Hotel construction has also slowed down considerably, whereas tourism had been a strong provider of job growth, most evidently in Orlando, Fla., and Las Vegas.
The lack of construction in all those areas reflects the true state of the job market.
The March job figures showed part of the reason behind the much lower construction levels and the difficult job market. In that month alone, almost a half a million people dropped out of the work force. The job growth figures were also surprisingly bad — only 88,000 jobs created.
But those dropping out of the work force tell a much bigger story. These drop outs are not only low-skilled people who can’t find jobs, but also higher-skilled and more-experienced workers who cannot find jobs at their level and are relying on a spouse’s income and savings.
In fact, the work force participation rate has fallen to record lows in which the employment-to-population ratio (in which “population” counts anyone 16 years of age and older) is down to 58.5 percent, when it had hovered around 63 percent for much of the previous decade.
I think the job market is much worse than the simple unemployment or job growth figures indicate. Although we all have to use statistics to take the temperature of the economy, sometimes the best way to really see what’s going on is to just open your eyes and look for those cranes.
Like the stork that brings new babies, those flying construction cranes are also bringing new babies in the form of buildings for new jobs. If you are not seeing a lot of “births” of those buildings, you probably aren’t seeing a lot of “births” of new jobs.
About the Author: Robert Wiedemer
Robert Wiedemer is a managing director of Absolute Investment Management, an investment-advisory firm for individuals with more than $300 million under management. He is a regular contributor to the Financial Intelligence Report, the flagship investment newsletter of Newsmax Media. Click Here to read more of his articles. Discover more about his latest book, "Aftershock," by Clicking Here Now.
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