Ten Years After the Great Recession...

By Mark Knold , Supervising Economist and Cory Stahle, Senior Economist

December 2017 marked 10 years since the Great Recession first cast its long shadow across the American economy. The recession officially lasted 18 months, but its consequences can still be seen across the country without having to look very hard. We have not had another recession since.

Utah was hit hard at the time, losing a larger share of jobs than the national average; but, we were fortunate to be one of the most resilient states in terms of economic rebound. There are plenty of states where the Great Recession continues to weigh upon them. Employment levels in 14 states are still not back to their pre-recession peak, and another 29 states have only grown 5.0 percent or less. As the working-age population has grown by more than 5.0 percent, the job gains nationally have not been enough to fully employ working-age labor.

Utah lost 7.0 percent employment during the recession. Since that low, employment has recovered by 18 percent. That is the second best rebound in the nation. From Utah’s pre-recession employment peak to now, Utah’s employment has increased by 9.5 percent, third best in the nation. Yet, Utah’s job growth has not been enough to absorb all of the labor force growth during that time. Utah’s unemployment rate is low, but the percent of the working-age population in the labor force is several percentage points below the pre-recession norm — telling us that potential labor is still not as fully engaged with the job market as before the recession.

As a whole, Utah has had a notable recession rebound, but those gains have not been shared equally across all regions. Just like the national profile, some areas have bounced back strong while others are still lagging behind. The state’s metropolitan areas have grown well, but many of Utah’s rural areas cannot say the same. Nine counties have employment levels below their pre-recession peaks.

In this issue of Local Insights, we profile Utah’s regional and county economies in light of the 10-year span since the Great Recession.

WASATCH FRONT SOUTH

Employment: Then and Now

As the Great Recession began in December of 2007, employment in the Wasatch Front South Region measured just over 615,000. In the months that followed, the job growth rate slowed. By October 2008, the year-to-year job change turned negative and jobs began to be lost. In total, more than 30,000 net jobs vanished in Salt Lake and Tooele counties during the recession.

While job losses occurred in nearly every industry, the largest loss was in construction. In 2007, the region’s construction employment averaged more than 43,000 jobs. By 2011, construction annual average employment fell to 30,000. Housing market volatility was the significant factor and will be discussed in more detail below.

In the 10 years since the recession began, both Wasatch Front South counties — Salt Lake and Tooele — have fully recovered and exceeded their employment level from the start of the recession. The following table shows each county’s employment base when the recession began, where each is today and the percent change in the two levels.

 Source: Department of Workforce Services, BLS

Despite recovery across all industries, the region’s construction employment still remains below pre-recession levels — 37,600 jobs in 2016. As mentioned, construction employment is tied, in part, to an area’s housing market. To better understand this connection, we now look at the housing market in context of the Great Recession.

Housing Market: Then and Now

In analyzing the Great Recession, many economists and pundits point to the housing market as one of the downturn’s significant drivers. John Weinberg, of the Federal Reserve Bank of Richmond, in 2013 observed: “The housing sector led not only the financial crisis, but also the downturn in broader economic activity…the decline…was modest at first, but it steepened sharply in the fall of 2008 as stresses in financial markets reached their climax.”

Why does the housing market impact economic activity so broadly?

One way is through construction permitting activity. As population grows and demand for homes is high, additional construction takes place. The result is more jobs and more construction workers who spend their paychecks on goods and services in the community, which may create other jobs. This ripple effect also works in reverse. As construction workers are laid-off, less money is spent in the community and other jobs may be lost.

The aforementioned construction employment decline stemmed, in part, from a significant drop in residential construction permitting. Between 2007 and 2008, single-family home permits issued dropped by 57 percent and have remained lower than pre-recession levels since (see table below). Other construction also fell during the recession, particularly non-residential activity. In 2007, $253 million was invested in building banks, offices and other professional buildings in Salt Lake County. In 2009, only $66 million was invested.

Wasatch Front South Single-Family Home Permits: 2005 - 2017

Source: Kem C. Gardner Ivory-Boyer Construction Database

In addition to the number of homes being built, the housing market also impacted the economy prior to the recession due to home financing (mortgages) being sold to investors. Instead of making their mortgage payments to a bank, homeowners’ essentially paid investors. This practice tied the housing market to the whole economy and worked well when homeowners paid their mortgages. Unfortunately, many individuals purchased homes they couldn’t afford³, which led to non-payment and disastrous consequences for banks and investors. For a more detailed explanation of the role mortgage speculation played in the Great Recession read John Weinberg’s full 2013 article.
A significant increase in home prices developed as the demand for houses increased and mortgages became readily available. According to John Weinberg (2013), between 1998 and 2006, U.S. average home prices doubled. Then, in 2007, the number of mortgage non-payments (defaults) began to rise and a ripple was sent through the entire economy — effectively dropping housing prices. This home price rise and fall was also evident in Utah. The state and Wasatch Front South saw home prices rise and fall by a percent significantly greater than the United States as illustrated in the graph below.

 

 Source: Federal Housing Finance Agency (FHFA)

Following a 10.5 percent home price drop through January 2010, Wasatch Front South home prices began to recover. Before returning to positive territory, the change in home prices again dipped in 2011. However, since the second quarter of 2012, the region’s home prices have steadily increased. According to the U.S. Census Bureau’s American Community Survey, Salt Lake County’s median home value was $220,000 in 2012. The most recent data shows a median home value of $274,000 for 2016.

Wasatch Front South Region: Then and Now

While there are many variables that could be discussed following the Great Recession, the two we have looked at — employment and housing — illustrate the recession’s impact and subsequent recovery in the Wasatch Front South area. Despite significant recessionary job losses and home price declines, the region has recovered and surpassed many pre-recession metrics.

Endnotes:

1. 12-month moving average December 2007.

2. 12-month moving average June 2017

3. Fueled by sub-prime or other introductory mortgage rates that masked actual homeowner affordability.