It’s been a year since we discussed the two weakest links for jobs in the US labor market which are Residential Construction and Government.  With continued improving employment figures, we thought it would be a good time to revisit these two areas.

As everyone is aware, housing was ground zero for the Great Recession.  One of the effects of falling prices was to discourage residential construction.  As we pointed out in last year’s post, we expect construction to eventually return to trend to keep up with new household formation, which would be somewhere, around 1.2 to 1.5 million units per year.  We believe this pace of construction will also lead to much lower unemployment.  Here is our chart from last year’s post.

The latest data shows that permits are climbing and while we don’t know if it will be a steady climb back, we believe that the longer it takes to get back to trend, the stronger residential construction will be.  Here is a chart with the latest data on permits.  Interestingly, it looks like last year’s chart is right on target- we’re at 800,000 permits, and the unemployment rate has dropped to under 8%.

As for government employment, as we pointed out with this post, government has been shrinking the last three years which has been a drag on employment and economic growth.

Now that tax revenues have stabilized and started to recover, we are beginning to see stabilization in government employment as can be seen on this chart.

Simply getting to no net government job losses would be a positive for the economy, and since our population will continue to grow, we will need more firemen, police officers, teachers, etc. so we expect government employment will eventually be growing again.