Fueled by a sizzling real estate and construction sector, Arizona and Nevada were hot spots for employment growth in July, outpacing the slow but steady growth recorded elsewhere in the U.S. Nonfarm payrolls grew by 2.2 million jobs across the nation, according to numbers released today by the Bank One Economic Outlook Center at the W. P. Carey School of Business.

         

"We're growing, but we're not growing at any great rate," says Dawn McLaren, research economist and editor of the Blue Chip Job Growth Update. "Our job creation nationwide just has not met its potential. We need the energy of a significant innovation -- something like the activity that was generated by the introduction of the personal computer -- to propel job creation. Nationally, I would say that the economy is underachieving at this point."

McLaren also warns against leaning on one sector to drive job creation.

         

"My biggest worry is we're counting too much on construction," says McLaren, who has been tracking job growth figures for five years. "The one bright star in job growth has been construction, which is tied intimately to the real estate market. The impact reaches beyond the work site and the sales office, into financial services, retail and other sectors. There are signs that the star could be fading, though. What will happen next?"

The report shows that jobs in the construction sector across the nation increased by 4.3 percent, comparing June 2005 to June 2004. Construction job growth outperformed all other sectors by a minimum of 1.2 percent nationwide. McLaren said the only other sector that came close was professional and business services, which is also driven by the real estate boom. "An undetermined number of those jobs were added because of the demand created by the housing market, which is linked to construction," she said.

Nevada, the top performing state, added 74,400 jobs (a 6.5 percent increase over the previous year). Twenty-six percent of these new jobs were in the construction sector. Arizona, the number two state for job growth, added 89,400 jobs (a 3.8 percent increase), and construction jobs represented 25.1 percent of this growth.

Another way of looking at job growth is to measure growth within a sector. The construction sector in high job growth states is becoming a larger share of total job growth. In Nevada, the construction sector grew 14.9 percent since June 2004.  In Arizona the construction sector grew 11.2 percent in the same period. Elsewhere in the West, Idaho also added a large number of construction jobs, growing this sector by 13.9 percent.

The two states recording the lowest percentage of overall job growth were Michigan and Ohio.

A look to the West

 

While the nation underperforms, the picture painted throughout the growing Southwest appears rosier -- although here, as elsewhere, many of the jobs are the result of red hot housing market. The glow may dim in the future, however.

         

Nevada, one of the region's two job growth leaders, has been on a roll for 15 months, posting above 6 percent job gains every month since September 2004 compared to 1.3 to 1.8 percent job growth nationally. But economists say this job growth spurt is unlike the past, when new casino openings led the way with thousands of glitter-related jobs. This time the new jobs are in construction.

"The real driver now is residential construction," says Jim Shabi, an economist for the Nevada Department of Employment, Training and Rehabilitation. "Gaming has always been at the front end, and then the people and services followed. That just hasn't been the case."

Shabi says the construction sector -- responsible for roughly one in four new jobs added to the local work force –- is probably at its peak. But, he does not expect it to go flat anytime soon. Leisure and hospitality have remained strong, with an economic shot in the arm provided by the recent opening of the Wynn Las Vegas property.

"By any standards we're still on a winning streak even when we slow down, which has to happen sometime soon," Shabi says.

Arizona, with a roughly 4 percent growth rate, has been riding the construction boom and its economic spin-offs to a place among the top states for new job creation for two years. Records once posted have been quickly surpassed. In fact, Arizona has not seen a construction boom like this since December 1995. Other contributors are health care and education, as well as the continued rebound in tourism.

Don Wehbey, senior economist for the Arizona Department of Economic Security, said job growth in the Grand Canyon state is being felt across nearly all economic segments. The economy is "nearly firing on all cylinders," Wehby says, and even manufacturing is poised to add jobs this year. Information services is not far behind from turning the corner.

 

But the fast ride may soon slow; Wehby predicts that there will be a downshift in job numbers in the near future. "It will be like we've taken our foot off the accelerator and started to slow down," Wehbey says. "It's not like we are going to come to a screeching stop."

In Washington state, the story is much the same. Officials say a recovery that began in mid-2004 is led by job gains in construction, health care and education.

         

Chang Mook Sohn, Washington's longtime chief economist, characterizes it as "a very balanced recovery geographically and industrially. We haven't seen it this good in five years."

High-tech players like Microsoft Corp. and aerospace companies like Boeing Co. also are showing signs of springing to life after a difficult few years, Sohn said. These areas took a double hit in recent years –- one from the post-Sept. 11 downturn and the other when the dot-com boom went bust. Now, all of that seems to be turning around. Sohn says more than 5,000 positions have been added to the job rosters, providing badly needed work in the Seattle metropolitan area and pushing additional dollars into the statewide economy.

Sohn expects more of the same when it comes to overall job growth in the coming year, yet while the buzzword will remain "healthy," he expects slightly fewer new jobs.

Oil- and gas-rich Texas, which has so far remained aloof from the construction frenzy, is the anomaly in the West. Economists report relatively low job growth on a percentage basis, although the gains have been posted virtually across the board. Strongest sectors include health services, education and trade. The advantage to the oil and gas industry growing out of the recent high oil prices has been offset by additional costs placed on energy-consuming industries.

Gary Preuss, an economist for the Texas Comptroller's Office, calls the state's economy healthy. "We're not getting into the excesses which often cause a real bust, like in oil and gas and high tech. It's been a sustainable rate of growth." He predicts a slight uptick in job growth numbers in the near term, fueled by stronger exports and an improved international economy. Exports from Texas account for roughly 14 percent of the nation's total and have tripled in dollar value since 1987.

Preuss believes the state is well positioned for the future, with its economic sights set on growing jobs in knowledge-based industries instead of the traditional ones built around natural resources.

McLaren says the rest of the nation could learn from the Texas example. Even though the economy will likely weather any upcoming instability in the housing market, sustainable prosperity depends on the innovation that grows out of a knowledge economy.

"A repair man who was working at my house recently set up the dilemma," McLaren said. "He told me he knew what the loss of high paying manufacturing jobs and the rise of the so-called 'service economy' means to wage earners. The guy who makes the shoes earns more than the guy who shines them, he said."

"I replied, 'The guy who designs the shoes makes the most of all.'"